Pledge credit requirements and characteristics!

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Pledged credit: What is it?

Also called pledge credit, it is none other than the loan that is granted against a guarantee, which can be from a jewel to a movable value.

The pledge credit turns out to be very similar to the process of pawning, since the good tarnished by the person is usually kept in a deposit of the credit institution, creditor or lender in order to ensure compliance with the obligation. In the event that the debtor defaults, the pledge or collateral may be auctioned or sold in order to meet the loan payment.

In general, this system is used by the pawnshops, placing the pledge at the disposal of the public for the pawnshops or for purchase. In turn, it is used by the municipal savings banks where you can access the loan or credit, accepting a person's property as collateral.

Where did the collateral credit houses originate?

It originated in the fifteenth century in northern Italy, more specifically, in the stone mountains built by the Franciscans. Before this place appeared, individuals who applied for loans had to cancel between 30% and 200%, which considerably increased access to credit for artisans, peasants or even small merchants.

For this reason, the Franciscans made the decision to organize the stone mountain, to be able to give interested parties credits or loans without interest, as long as they placed a guarantee pledge.

What are the conditions of the collateral or pledge credit?

One of the main conditions that the pledge credit has is the fact that the creditor can keep the guarantee protected in order to ensure the completion of the obligation.

As we said before, the return of the jewel will be made, when the debtor cancels the requested credit. In case of not being able to cancel the debt, the creditor may carry out the auction or sale of the object.

A curious fact that very few people know is that the period of indebtedness can be extended taking into account that the lender must keep the piece in safekeeping as collateral.

Necessary requirements to apply for a pledge or pledge credit

We must bear in mind that each of the countries and entities where this type of credit is offered usually request different requirements, however, the basic documents that are usually requested in Argentina are:

• Proof of work, indicating the seniority in the company.
• Document stating the minimum income you have.
• Possess between 19 and 60 years of age.
• Identification document. If you are a foreigner, you must present your valid residence or passport.
• Proof of payment of services, where the full name of the applicant appears.

All these documents are requested by the agency, to verify that the applicant has sufficient funds to be able to pay off the loan that they request, regardless of whether it is to acquire a car or buy a house.

Characteristics of the loan or pledge credit

• It is a completely legal contract.
• This loan can be renewed by the parties.
• The pledge credit usually brings a financial gain to the creditor.
• This credit can only be formalized by presenting a piece of furniture as collateral, not a property.
• Once the debt is paid off, the creditor must return the furniture.
• The creditor must protect the furniture until the debtor pays the debt.

Advantages offered by this loan or pledge credit

• The interest rates are much lower than loans granted by financial institutions.
• The credit is quickly approved to be granted in a few minutes.
• Credit money can be used in the most convenient way.
• The person will continue to own the object, regardless of whether it has been delivered as collateral.
• Once the loan guarantee is delivered, the money will be delivered immediately.
• No guarantee is needed, since the object or good that is left is sufficient guarantee for the cancellation of the credit.
• Interest and monthly payments are fixed.

Disadvantage of the collateral or pledge credit

Despite the flexibility that this credit or loan has, it also has some disadvantages that the individual must keep in mind when requesting it. Some of these are:

• The credit applicant may lose an extremely valuable object by not being able to pay off the debt.
• The piece or piece of furniture delivered as a guarantee may be damaged.
• Depending on the entity used to request the credit, the approval time will be extended for a few days.
• Although interest and fees do not vary, some banks tend to increase them as indicated by the rate.

If you enjoyed this article, we invite you to read about "What is the LIGIE? Learn about its purpose in commerce!", as well as the classification given to merchandise and much more information about the General Import and Export Tax Law, better known as LIGIE.