A number of financial institutions are currently focusing on collateralised lending as their primary credit product, particularly home equity or home equity.
But do you know how this type of loan works? Do you understand such property sale? Secured credit is a financing option where the customer gets better terms such as lower rates, lower installments and longer terms by placing a collateral as well.
It sounds complicated, but in this text we will explain everything you need to know about it so that you are not unsure when deciding.
What is property alienation?
Disposal of property or chattel mortgage is a legal remedy used to transfer ownership of an asset, in this case a property, to a financial institution during a credit transaction. The collateralised operation allows the institution to provide loans with much lower interest rates and longer terms.
While the contract is active and there are installments of the loan to be paid, the financial institution has indirect ownership of the property and the customer has direct ownership and usufruct, ie can continue to live or rent the property. With the repayment of the installments and the consequent end of the contract the property returns to the owner.
The customer may also sell this property for the duration of the contract, provided that, with the sale amount, the debt is settled with the institution that provided the loan.
The chattel mortgage was instituted in 1997 with Law No. 9,514, which simplified the process and reduced bureaucracy, which encouraged banks to continue to carry out this type of transaction.
How it works?
Although simpler and less bureaucratic, the process for lending is similar to other forms of lending. In this case, a credit analysis is also done to prove income and to make sure that the customer can afford the installments.
Presenting a security as well does not guarantee that the loan will be released. The guarantee is for banks and financial institutions to offer lower interest rates and longer terms on credit operations, which reduces the possibility of default.
It is usually recommended that loan installments do not commit more than 30% of the client’s monthly income and, by law, institutions may lend up to 60% of the property’s value.
But after all, can I lose my home?
Repossession is an extreme measure in cases of persistent delinquency, but this is a very expensive process for the bank or finance company, which still runs the risk of not recovering the full amount borrowed.
The property taken over by the bank in cases of non-payment goes to auction and the sale value is used to repay the debt. The excess amount is returned to the customer. In these cases, the institution only recovers the amount it gave as credit, has no profit from the operation.
What are the advantages of this type of loan?
The biggest advantage is the much lower interest rates compared to the rates offered on other loan arrangements.
Another big advantage is the much longer lead times. In this modality it is possible to install the financing up to 180 times, which allows a greater release of funds with lower monthly installments.
While studying credit alternatives, simulate and compare the amounts paid per month and the debt amounts in different categories such as Secured Credit, overdraft, personal loans and payroll loans.