While there are thousands of people that ask for loans under daily basis, only a handful secure it. Why is it so? Well, if you go by the proper documentation and understanding of the loan process, you will realize that most of the people do not have the desired credit score. They have either not taken out any loan till date, or they have not paid the previous loan in the correct manner. If either of the cases are true, then the credit score will definitely be affected, leading to dismissal of their loan application.
Hence, a second circumstance, which leads to asset based lending has been brought forward by the commercial companies. Asset can be in the form of movable or immovable properties, and depending upon its current valuation, a margin will be deducted, and the rest of the money can be processed by the financing company as a loan to the owner of the property. Yes, such kind of lending has a fixed rate of interest, and always entitles the person to keep processing the correct amount of money every month, or on a predetermined schedule, or else the property will be sold off in order to get back the money.
Asset-based lending is also known as a collateral lending scheme. The rate of interest is extremely low, at least in comparison to the conventional loans provided by the financial institutions. It has tremendous advantages, but if you are unable to pay the loan amount even after extension of payment term, you would have to forfeit the property. This is the one inherent risk is to be found in the asset-based lending; it is one of the primary reasons as to why people prefer to not undertake this form of loan, as they have a fear of losing out on the property.