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Asset-based Lending
An asset-based loan or lending scenario is one in which some form of collateral (property or an object of value) is presented (or "put down") to secure the loan in the event of a default or a failure to make the required payments. Essentially if the debtor does not meet the repayment schedule, the collateral is seized by the lender in an effort to recoup the loss. One of the most common examples of this kind of lending arrangement is the home mortgage in which the home purchased is the collateral for the loan.
Normally a grace period is involved (typically 30 days) but seldom are instances of failure to pay allowed to extend beyond 90 days. In evaluating an individual's credit history, any instances of default, bankruptcy, or foreclosure (cases of collateral being seized) are seriously negative incidents that impact the perception of the individual's creditworthiness and subsequently the credit rating they receive.
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