Question

how amount is calculated in collateral security

Answer 1

In order to know what to put forth as collateral for your loan, you'll have to calculate the collateral worth of your possessions using the same process the lender uses to determine the collateral worth. The first step is to determine the fair market value of your possession. Then, this is discounted by a certain percentage. For example, real estate is often discounted by 20 percent, so if your home is worth $200,000, it can likely be used as collateral to cover a $160,000 loan. Collateral like business equipment might be discounted more steeply because it is more difficult to sell. Your lender should be able to help you understand how the market value of your collateral will be discounted.


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