The lending market in Israel is flourishing. In recent years, associations, companies and entrepreneurs have been developing, providing just as high quality loans as banks. Today, each of us can go online, look for a loan, send forms online, and receive a sum of money – usually relatively low in these cases – directly to his bank account. On the other hand, when there is a need for a large sum, a loan against property is another trend that we are discovering today.
How It Works? What are the risks behind this? And when should we take the plunge? Here are some tips from us.
Loan against property – how does it actually work?
In order to receive a large sum of money as a loan, we usually need to present guarantees, sometimes to sign people backing us in obtaining the loan or to show detailed reports of our financial situation, savings, funds and assets. A loan against an asset is actually a loan based on an asset in our possession, which acts as a guarantee against the loan.
These are not usually small loans, but large and significant loans that provide large sums of money and most of these loans will be provided by the banks. As part of the process for approving the loan, the applicant is requested to present the documents of ownership of the property and the value of the property in his possession. Based on these data, he can get a loan from the bank when basically the bottom line is – if you do not pay, your property can be transferred to the bank.
Risky loans or calculated risk?
A loan against an asset can provide us with relatively large amounts of money as a loan and good conditions that include dispersing loan payments over the years, low interest rates, and more. However, there are some risks to consider.
The greatest risk is the loss of the house and its absolute pledge to the bank. This happens only after there have been arrears over a period of time and after a long bureaucratic process. Although the likelihood of this is low, it is still important to understand that the receipt of a loan against an asset is actually encumbrance of the existing asset in favor of a certain amount of money and that ultimately, if we can not pay, we are exposed to such a danger.
Additional risks exist as in any loan – additional interest rates in the event of arrears in payments, foreclosures, legal recourse and many other restrictions. This is why you should take this loan only when it comes to the amount that you will not get as part of a regular loan.
When should I take a loan against a property?
A loan against an asset should be taken only when you are certain that you will be able to make payments. Therefore, it is advisable to contact the banks and receive loan proposals, with details of the spread of payments and the interest rates offered to you, before you decide where and how much to take.
Usually, you do not take a loan against an asset when it comes to a small amount, except when the loan amount is equivalent or similar to the amount of the apartment value. Therefore, these loans are suitable primarily when you want to buy an additional apartment for investment, apartment for children, to buy a building for business or any other investment that is significant and large.