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When you apply for a loan, the lender typically requests information about your income and credit history to ensure that you have the ability to repay the loan. If the loan is large or the lender isn't confident that you will be able to make the payments, he may request collateral or a guarantee.
Collateral
When you use collateral to obtain a loan, you must pledge one or more of your assets as security for the loan. If you fail to make your payments, the lender can foreclose on the collateral you pledged and sell it to recover the debt. For example, to secure a home loan, you typically pledge the home as collateral. If you fall behind in your mortgage payments, the bank may sell your home.
Guarantees
A guaranteed loan is a loan in which an individual or entity has agreed to be personally responsible for the debt in the event of default. Lenders will grant a guaranteed loan if you agree to be personally responsible, if another individual agrees to act as guarantor or if another entity, such as the Veteran's Administration, guarantees the loan. If you default on the loan, the lender can file a lawsuit against the guarantor for the debt.
Collateral is physical. In other words, the lender can legally 'attach' physical goods if necessary in order to recoup investment on a failed loan. An example is that, under a mortgage agreement, the property involved is the collateral.
Under a personal guarantee, a person signs based upon their personal asset value and reputation, with no specific collateral mentioned. However, in the event of default, it is possible that the lender will sue the guarantor and go after some or all of that person's physical or financial assets.
Guarantee of different types may be sponsors and may be mortgage and may be in bonds and shares of companies are many types
While the bill is a promissory note and a binding payment to the bank on a certain date, and is considered a very serious bill on the borrower
And the Bank
Assets pledge as a security for the repayment of the loan. If fails then second party can take the possessions of the asset. (Collateral)
Third party provides a guarantee that promises made by the first party will be fulfilled. If fails then guarantor will pay off and bank will ask the first party for payments as per guarantee. (Bank guarantee)
Collateral is the security which bank take from the customer against the loan and Bank Guarantee is a product of the bank. through this product bank take the guarantee of it's customer.
agree with answer ..............................................
I agree with Mr .Shamseer KM .
Description
Collateral is pledge against asset usually fixed asset. Bank Guarantee is a promise made by a bank (usually a bank where the Borrower has account and business relationship) to pay the loan amount together with interest to the other bank (lending Bank) if the borrower failed to pay or settle his debt. Bank Guarantee is usually given and accepted by Banks who are affiliate to each other.
Purpose
Bank Guarantee usually is given for a short term loan while Collateral can be for long term loan too.
Process
Bank Guarantee is a short process for the borrower if the he has a good security or relationship with the Guarantee bank. But sometimes it will be difficult if the two banks are not affiliate to each other.
Security
From the borrowing bank (lender Bank) side Bank Guarantee is more securing than Collateral. Whenever or for whatsoever reason the borrower failed to pay its debt, the Lending bank has a right to ask the Guarantee Bank to pay the debt immediately. There is no additional selling cost as that of collateral.
Cost
Bank Guarantee is more costly than Collateral for the Borrower and cheap for the Lender. Bank service charge is usually big or high amount is asked on Bank Guarantee and in most case it is paid every year or on each renewal of the guarantee.
