Features and Risks
Lower Interest Rates: Since the loan is secured by collateral, lenders often offer lower interest rates compared to uncollateralized loans.
Higher Borrowing Limits: Borrowers can access larger loan amounts depending on the value of their collateral.
Wide Range of Collateral Options: Assets like real estate, vehicles, and cryptocurrencies are commonly used as collateral.
Reduced Lender Risk: The presence of collateral minimizes the lender’s risk, making these loans more accessible for borrowers with diverse credit histories.
Risks
High Collateral Requirements: You often have to lock up more value than the loan itself. For example, putting up $150 worth of assets to borrow $100.
Liquidation Risks: If your collateral loses value, the lender might automatically sell it to recover their money, causing you losses.
Market Volatility: Fast-changing markets can make your collateral worth less, increasing the chance of liquidation.
Limited Access: Not everyone has enough assets to provide as collateral.
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