Definitions Explained: Collateral, Down Payment, Co Signer
Posted on September 17, 2008
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Loan terms come in great numbers and it seems that whoever came up with them tried very hard to be as confusing as possible. Some of the greatest confusions regarding loans is when it comes to
” collateral
” down payments
” and co-signers
Each of these is important and they all have something to do with getting a loan, but do you have any clue about them beyond that?
Collateral is personal property that you use to secure the loan. That means if you default you give it to the lender. On a car loan the collateral is the car and on a mortgage it is the house but for other loans there might be valuable collateral required.
A down payment is money you put up for the loan at closing. The down payment is like a very large loan payment made before you even get the loan. This applies to many loans for houses and often for vehicles as well. If you have stellar credit you can sometimes get away without the need for a downpayment.
A co-signer is someone you know who also signs the loan agreement and agrees to be responsible of the loan if you default. If your credit is less than perfect a co-signer might be required.
All three can help you get a loan approval and reduce the interest rate on the loan.
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