Collateral Lending Vs. Asset Lending

The confusion between collateral lending vs. asset lending is valid. Both terms cover very similar concepts in the pawnbroking space, and there’s a lot of overlap in their meanings.

To start with, it’s worth knowing that both options could be a handy way to improve cash flow for both business and personal reasons. If you need an immediate, discreet and secure loan against assets you already own, this type of lending makes sense.

So, let’s clear up their meanings.

What is collateral lending?

Collateral lending involves pledging (or pawning) a valuable asset as security for a loan.

An “asset” could be anything from cars to property, luxury watches, portfolios and stock. The asset is used as “collateral”, which reduces the risk for lenders, as it means they could lose their assets if they don’t repay the loan on time.

At the end of the loan period, the item is given back to the original owner once they pay the interest owed.

What is asset-based lending?

Asset-based lending is largely another term for collateral lending.

The main difference is that, with asset lending, the collateral has to be a tangible asset with a monetary value, such as cars, watches, jewellery and art.

Other than that, the concept is the same. You trade in your assets for an immediate loan, and get them back at the end of the loan period. The assets are stored by the lender as security and assurance that the loan will be repaid.

Collateral lending vs. asset lending: Key differences

Things get complicated because “tangible assets are always collateral security, but collateral security isn’t always tangible assets”. Sometimes, collateral security is non-tangible assets like stock portfolios and even intellectual property (IP).

That means the terms could be interchangeable, but only in certain scenarios. Here’s a quick table to show key differences and similarities between collateral lending vs. asset lending.