News & Tips on Personal Financing

What is a Collateral Loan?

The quickest way to answer the question “What is a collateral loan?” is to say that it’s a pawn shop loan. However, that is not a complete definition, because it is not only pawn shops that provide collateral loans. In recent years, upscale collateral loan providers such as Diamond Estate Jewelry Buyers (DEJB) have emerged to offer collateral loans on diamond jewelry, Swiss timepieces, and other precious gift assets in a more comfortable, secure, and upscale environment.

So, what is a collateral loan? A collateral loan is a loan that is secured by some asset you own. If you are obtaining a collateral loan from Diamond Estate Jewelry Buyers, this asset might take the form of a Rolex watch, a Tiffany & Co. diamond ring, or several gold bullion coins.

You promise that DEJB can keep your collateral gift asset, if you cannot repay the loan as agreed. By using a collateral loan, you take less financial risk (because there is no risk of default or reports to credit rating agencies), and it may be easier for you to get the funding you need to cover a temporary cash shortfall.

When are collateral loans used? Collateral loans are used when the loan seeker has temporary financing needs that must be met quickly and/or when they want greater privacy and confidentiality. For example, small businesses sometimes seek a collateral loan to make payroll during a slow period or to replenish stocks during an unexpected business boom.

What’s the risk when taking out a collateral loan? If you pledge a portable luxury asset as collateral to a collateral lender like DEJB, the only risk that you take is the potential loss of the item you used as collateral. If you fail to pay back your personal loan or simply choose not to pay it back for any reason, Diamond Estate Jewelry Buyers will simply keep the asset, sell it, and recoup their loan that way.

How are assets valued for a collateral loan? The value of gift assets such as diamond jewelry and Swiss watches is appraised based on their current resale value. Depending on the item, the lender might only offer 50-75% of the appraised resale value to ensure that they can recoup their loan if it is not paid back. In the case of Diamond Estate Jewelry Buyers, they provide entirely free verbal appraisals, so clients know exactly the loan amount that they can expect to receive.

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