An asset-backed loan could unlock instant capital for you, even if you have a rocky credit history or irregular income stream.
However, this type of loan isn’t entirely without risks. Like any loan, you’ll have to repay it according to the agreed-upon terms.
If you’re wondering ‘What happens if I don’t repay my asset-backed loan’, this is for you. Get familiar with the intricacies of pawning luxury items before you get started.
The mechanics of asset-backed loans
Asset-backed collateral loans (or asset loans) let you use your luxury items as security against a loan. This could be anything from high-end watches to jewellery, gold, art, designer handbags and luxury vehicles.
You can receive a loan against the asset (with Trilogy, loans of up to 70% of the asset’s value are available). The pawnbroker securely stores your asset, which is returned to you once repayments have been made.
But what happens if you default on those repayments? We’ll cover that in the next section.
What happens if you don’t repay your asset-backed loan?
You should only apply for an asset-backed loan if you can make the repayments. Every lender is different, so be sure you understand and can meet your obligations as a borrower.
If you default on payments, you risk losing your assets.
If repayment and interest aren’t received within the agreed-upon timeframe, the pawnbroker will give you two weeks’ notice. If you still haven’t made the payment within this time, pawnbrokers have the right to sell the pledged item at its trust market value, with any surplus going back to the owner of the item.
Mitigating the risks of pawning your items
Of course, there’s risk involved with all kinds of borrowing. However, you can safeguard yourself (and your luxury possessions) by taking some precautions before entering into a pawnbroking agreement:
- Ask questions: Lenders are more than happy to provide clarity about the loan, repayment structure, or anything else that’s on your mind. Just ask if you’re not sure.
- Communicate: Let your lender know if you anticipate repayment issues. The earlier you tell them, the better.
- Loan restructuring: Asset loans are pretty flexible. Ask your lender about ways to make repayments more manageable; you might be able to extend the loan period, for example.