Assignment by way of security for loans – when does it make sense?
A transfer by way of security is always necessary if a borrower wants to borrow a higher amount and does not have the necessary income. One thing, such as a property or a car, serves as security in the event of difficulties with repayment.
What exactly is security transfer?
Ownership and ownership relationships are redefined as transfer by way of security in the sense of the recipient of the transfer by way of security. In Germany, the transfer of security is recorded in the contract for many types of loan. In the case of a security assignment credit, the current property of the thing remains with the lender or a person to be determined by him. Especially with large loan amounts, it is customary to deposit ownership of a thing as security. The matter itself remains in the borrower’s possession. This gives him direct control, but is also responsible for its maintenance. The assignment of security applies whenever the loan amount can no longer be repaid. In this case, the borrower is given the contractually agreed item and now also has ownership of it. Often,
In this case in particular, it often makes sense for consumers to set up additional cover in the form of insurance. Car insurance could serve as an example for a new car that was bought by the dealer with an installment agreement. If total damage to the car occurs, the driver is entitled to reimbursement of the residual value of the vehicle with sufficient insurance cover. As a result, he remains financially able to act. In many cases, such insurance policies that aim to preserve the value of the collateral are legally mandatory or expressly requested by the contracting parties for understandable reasons.
When does assignment by way of security make sense?
Assignment as security always makes sense if a loan with a long term and a large sum is taken out. In most cases, the loan is taken out especially for the security goods. A real estate loan without equity, or an installment loan for a new car are the classic examples of a security transfer. The inclusion therefore always makes sense if the risk of default is higher due to the amount of the loan. The additional protection enables the lender to protect himself against repayment defaults. In return, the borrower can protect himself from additional costs by taking out additional insurance or by excluding responsibilities in the loan agreement. A win-win situation for both parties.
Benefits for borrowers and lenders
Probably the biggest advantage for the borrower is the additional security. If the thing is not totally damaged by the borrower, then the borrower has the opportunity to successfully enforce his claims in the event of an event. Additional insurance (motor vehicle liability, building insurance, etc.) gives both parties the option of getting rid of the loan in the event of unforeseen events. This also means greater legal certainty in the loan agreement and increasesthe demands on the quality of the collateral. The transfer by way of security can be fictitious, whereby the borrower remains in possession of the thing or real. In the case of direct transfer by way of security, the security goods are deposited directly with the lender and remain in their possession until repayment has been made. This flexibility makes the loan model very popular.
Disadvantages for borrowers and lenders
The collateral transfer credit can often result in follow-up or ancillary costs. Most of these are insurance policies that are essential for maintaining the value or securing the security. Often, these additional credit safeguards are provided by law and fulfill a very important protective function against consumers. Since the loans are usually concluded on a long-term basis, there is of course a general increased risk of default.