Collateral loans and over collateralized loans
One interesting way to make your money make more money is to use over collateralization.
Collateral loans
A Collateral loan is a loan that you take against your asset or against your money.
Collateralized money, when a loan is taken against money, the money becomes collateralized money. The lender hold this collateralized money and you won’t get it back until you pay the adjusted loan.
The lender , the person that is lending you the money wants some type of assurance just in case you default on your obligation to pay back the money that you borrowed.
If you decided to pledge an asset or your money as collateral, The lender has the right to take your asset or your collateralized money if you default on your obligation.
Default basically is when for any reason you are not able to pay back in a timely matter the money that you borrowed.
Types of collaterals
Here are some types of collaterals that can be use to borrow money.
- Cash accounts – if you have like a money account with cash on it.
- Investments – like stocks and bonds, etc
- Real estate – if you buy and sell property
- Equity if you own a home
- Insurance policies – if you have an insurance.
- Valuable Equipment
- Valuable machinery
- Valuable Collectables
- Valuables – any with monetary valuable to the lender
What we are really interested is cash account. we’ll be going into that in a moment.
Also
You can borrowed money without collateral, You will have to find someone that is willing to take that risk.
But
We won’t talk about that either, Since I am interested in taking about Collateralized money so we can use this money to make more money with over collateralization.
Over Collateralized loans
Over collateralization is when you take a loan against your asset or money then you use this money that you borrow as collateral again to take another loan. Then keep repeating the processing over and over.
Example:
If you have $1000 on a cash account and lets say that you can borrow up to 70% of your capital.
You can collateralized that $1,000 to borrow $700
So now you have $1,700 and owe $700
But then can collateralized that $700 to borrow $490
So now you have $2,190
But then you can collateralized that $490 to borrow $343
So now you have $2,533
But then you can collateralized that $343 to borrow $240.1
So now you have $2,773.1
But then you can collateralized that $240.1 to borrow $168.07
So now you have $2,941.17
But then you can collateralized that $168.07 to borrow $117.65
So now you have $3,058.82
So far you went from having $1000 to having $3,058.82
So far you went from owing $0 to borrowing 2,058.82
So Imagine that you can borrow money at 3% and can earn 5% with the collateralized money.
So you making 2% profit passively, Just doing nothing.
This could be any amount of money or any percentage. This is just an illustration of what people are able to do with over collateralization.
Because 2% profit of $1000 is just $20, not big deal
but if you increase the amount
2% profit of %1,000,000 is $20,000
Now, imagine if is 10% profit instead of 2%
10% profit of $1000 is $100
10% profit of $1,000,000 is $100,000
So people are using leverage to make their money make more money.
You can do this with assets, with fiat money or with crypto.
But with crypto-currency is where the big $$$ is.
What about the loan?
If you take a loan at 3% and earning 5% on the collateralized money then the loan will pay itself out as time passed, and you profiting 2%
More importantly, If you take a 10,000 loan for example, as time passed that loan pays itself out.
When the loan pay itself out, The collateralized money is release to you, this means that now you have 10,000 and this could apply to any amount money.
Taxes
Just in case you are not aware, you don’t pay taxes on loans.
That’s it.
Take a calculated risk.
Now, start and adjust as you go.
