Encore Auto

Finding money when you need it most can be difficult. Sometimes you need to take what you have and translate it to the funds you need. Sometimes the best collateral you have is something you did not consider as collateral, and someone needs to point it out to you. It is just a matter of looking at what assets you have.

The traders policy

One form of collateral that most people do not look at is an insurance policy. There are numerous kinds of policies out there, from life to home insurance policies, which can be used for collateral. Even a traders policy can be used under the right circumstances. A traders insurance policy allows a dealer to drive any vehicle and remained cover by insurance. Although there are some limitations on the use of the policy, not the least of which is that it requires a dealer, it allows the dealer to drive cars on and off the lot as well as allow for test drives.

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Insurance as Collateral

Insurance policies make for some good collateral. They are a guaranteed source of money in case the person defaults on the loan, making the loan officer somewhat happy to deal with the person. There are some limitations, but they apply to mostly to the insurance itself. The policy needs to be kept up to date until it is paid back or the loan is considered in default in essence, if the insurance is no longer valid then neither is the loan it is based on. Also, the maximum payout on the insurance is limited by the loan the loan is subtracted from the maximum available.

Additional Concerns

It should be noted that a traders policy is a business policy, not a personal policy. Although it applies to just one person and those he places on it, without the policy he is unable to run his business. Dealers must still have insurance in order to drive a car on the road and a traders policy allows him to drive any car while covered. Without coverage of a minimum amount the policy is useless in effect he is no longer covered if the loan is beyond a certain amount, and that makes him unable to drive any cars he is not personally insured for.

How It Can Be Used

A loan officer needs to have reason to give a person a loan. Credit is nice, but can only go so far the loan officer's worry is that if the loan defaults the person will find a way to not have to pay it. Because of that worry most loan officers look for some form of collateral. Insurance is an ideal collateral as it is virtually guaranteed to payout and as such the loan officer is willing to allow more of the insurance to count towards collateral for the loan. By way of comparison, physical items, such as a car or home, are usually valued at 50 or less when it comes to acting as collateral.


In Summary

Risk of losing the collateral must always be considered when it comes to taking out a loan. Insurance is one of the best kinds of collateral available, but there is the risk of the size of the loan effectively eliminating the insurance even as the person must continue payments on it. When it comes to something that is important for running a business, the consideration must be really debated. In short, consider all options and risks before taking a loan and you should be all right.