What is the point of collateral?

[RyEter]

I know I will recieve a lot of criticism for this post, maybe even a few neg reps.
But I believe I have a valid argument here.

Why borrow money when you could just sell the collateral in the first place?

The point of the collateral breaks down here, no matter what you say.

The reason why people borrow money is because they need/want that money. They do not want to sell what they have for the money the need/want.

It does not make sense and might even be a bit stupid to think something like,
"Oh, I need $500 to pay my bills…I have an iPad lying around let me just send that to a guy online and he will give me a LOAN, when he gets the iPad. If I pay him back he will send my iPad back to me!"

It does not make any logical sense whatsoever.
It's like buying $20 for $25.

I think the "no collateral no loan" sticky should be replaced by this post because it just makes more sense.

Maybe, just maybe it would make a bit more sense if the lender asked for <50% collateral but the 110%-115% is just plain ridiculous.

Not trolling here, I am being very serious.

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[iv4n]

I know I will recieve a lot of criticism for this post, maybe even a few neg reps.
But I believe I have a valid argument here.

Why borrow money when you could just sell the collateral in the first place?

The point of the collateral breaks down here, no matter what you say.

The reason why people borrow money is because they need/want that money. They do not want to sell what they have for the money the need/want.

It does not make sense and might even be a bit stupid to think something like,
"Oh, I need $500 to pay my bills…I have an iPad lying around let me just send that to a guy online and he will give me a LOAN, when he gets the iPad. If I pay him back he will send my iPad back to me!"

It does not make any logical sense whatsoever.
It's like buying $20 for $25.

I think the "no collateral no loan" sticky should be replaced by this post because it just makes more sense.

Maybe, just maybe it would make a bit more sense if the lender asked for <50% collateral but the 110%-115% is just plain ridiculous.

Not trolling here, I am being very serious.

.
Well people need money it`s true, but people also dont wish to renounce of their belonging. Its simple and very logical to me. No matter wich example u take u fill find that logic, after using that money they wish back what they give for collateral. Of course many people after some times decide to not take back, so for that u always ask bigger collateral then loan. I dont know why are u confused with this simple thing.

[RyEter]

I know I will recieve a lot of criticism for this post, maybe even a few neg reps.
But I believe I have a valid argument here.

Why borrow money when you could just sell the collateral in the first place?

The point of the collateral breaks down here, no matter what you say.

The reason why people borrow money is because they need/want that money. They do not want to sell what they have for the money the need/want.

It does not make sense and might even be a bit stupid to think something like,
"Oh, I need $500 to pay my bills…I have an iPad lying around let me just send that to a guy online and he will give me a LOAN, when he gets the iPad. If I pay him back he will send my iPad back to me!"

It does not make any logical sense whatsoever.
It's like buying $20 for $25.

I think the "no collateral no loan" sticky should be replaced by this post because it just makes more sense.

Maybe, just maybe it would make a bit more sense if the lender asked for <50% collateral but the 110%-115% is just plain ridiculous.

Not trolling here, I am being very serious.

.
Well people need money it`s true, but people also dont wish to renounce of their belonging. Its simple and very logical to me. No matter wich example u take u fill find that logic, after using that money they wish back what they give for collateral. Of course many people after some times decide to not take back, so for that u always ask bigger collateral then loan. I dont know why are u confused with this simple thing.

I'm not confused.
Its just stupid how people take a loan instead of selling their collateral.

People can just sell their iPads and use it for whatever pourpose they want, and they would earn back the money they sold that iPad for relatively quickly.

I don't think you understand the point of my post please reread.
Let me emphasize.
It's stupid how people take a loan instead of selling their collateral.

[marjod]

I think you are wrong with this. IRL pawnshop gives money but needs a collateral in case of default, that makes sense.
If you need money on a short term period, better put something to a pawnshop, get your things done and repay the loan back in order to get your collateral back.

In the case of a bitcoin loan, it's the same thing. Loaners need security in order to avoid getting scammed so they ask for collateral. Most of loan requests are a short term period. Would you sell you iPad if you know you are in need of money only for 1-2 days ?

The fact that many scammers operating in the bitcoin community have clearly an important impact on the whole collateral thing. Since you cannot trust everyone on the internet, it seems normal, in my honest opinion, to ask for a security in order to avoid getting scammed.

[RyEter]

Most of loan requests are a short term period. Would you sell you iPad if you know you are in need of money only for 1-2 days ?

You don't make any sense.
I could sell the iPad and make the money back in the same time, it would take me to pay back the loan.
So if I needed the loan for 1-2 days I would sell the iPad and make the money back in 20 days. 20 days is the same amount of time it would take for me to pay back the loan and get my iPad back.

As for security, I would say it's a ripoff.
The whole idea of 110-125% collateral does not make sense.

It's stupid no matter which way you argue it.

[The Sceptical Chymist]

Collateral works better in the real world for things like title loans and such, and it's what pawn shops are based on.  You give your wedding ring as collateral for a $100 loan and if you default, the pawn shop has way more than $100 to sell.  Here online it's not so useful, as most collateral has to be digital.  And then there's the issue of borrowers overvaluing what they've got. 

[RyEter]

Collateral works better in the real world for things like title loans and such, and it's what pawn shops are based on.  You give your wedding ring as collateral for a $100 loan and if you default, the pawn shop has way more than $100 to sell.  Here online it's not so useful, as most collateral has to be digital.  And then there's the issue of borrowers overvaluing what they've got. 

I do not really agree with that idea either. Read the above comment.
Well, you would not really take that kinda loan unless you were REALLY REALLY poor.
Anyways read the above comment.

[onemorexmr]

you can use it for margin trading.
eg you have XRP and want to go long.
you borrow btc and give xrp as colleteral.
you buy more xrp with that btc.

if xrp goes up: you win. if xrp goes down: well... hopefully you got out soon enough ;-)
the lender should factor this in when accepting alts as colleteral

[mtnsaa]

I think collateral makes more sense for lenders and that's why it is required, but the ones asking for the loans are always better off saving the money or actually putting that collateral to good use. Loans should always be avoided but that's not the point of the discussion, so collateral is a necessity.

[The Sceptical Chymist]

Collateral works better in the real world for things like title loans and such, and it's what pawn shops are based on.  You give your wedding ring as collateral for a $100 loan and if you default, the pawn shop has way more than $100 to sell.  Here online it's not so useful, as most collateral has to be digital.  And then there's the issue of borrowers overvaluing what they've got. 

I do not really agree with that idea either. Read the above comment.
Well, you would not really take that kinda loan unless you were REALLY REALLY poor.
Anyways read the above comment.

I did read it and still don't understand it.  You give something as collateral because you don't want to sell it.

[Hellacopter]

There is a big difference between using collateral hold for some period of time till paying back the loan, and selling your collateral. You try to explain like its the same thing, but it's in fact not. Collateral is not sold nor lost, you get back your collateral once you pay back your loan, so no problem at all about using it

[~Bitcoin~]

There is lot to understand, if you can get money and use it, repay after you get money from elsewhere rather than selling those collateral. And it is not always easy to find buyer for some of the collateral items. So if you know you will be getting some money later but need money right now, than getting loan using collateral is wise decision.

[nydiacaskey01]

I know I will recieve a lot of criticism for this post, maybe even a few neg reps.
But I believe I have a valid argument here.

Why borrow money when you could just sell the collateral in the first place?

The point of the collateral breaks down here, no matter what you say.

The reason why people borrow money is because they need/want that money. They do not want to sell what they have for the money the need/want.

It does not make sense and might even be a bit stupid to think something like,
"Oh, I need $500 to pay my bills…I have an iPad lying around let me just send that to a guy online and he will give me a LOAN, when he gets the iPad. If I pay him back he will send my iPad back to me!"

It does not make any logical sense whatsoever.
It's like buying $20 for $25.

I think the "no collateral no loan" sticky should be replaced by this post because it just makes more sense.

Maybe, just maybe it would make a bit more sense if the lender asked for <50% collateral but the 110%-115% is just plain ridiculous.

Not trolling here, I am being very serious.

The way I read your post is you think that are the Borrower, but try to put yourself in the lenders Shoes. how are you going to protect your investment or money that you mend to a borrower, how are you going to make him/her pay you back. If the collateral is just 50% of the loaned value then if the Borrower did not pay you, you only have an item that you can liquidate at 50% value of the money you loaned to the borrower.

[Amph]

Collateral works better in the real world for things like title loans and such, and it's what pawn shops are based on.  You give your wedding ring as collateral for a $100 loan and if you default, the pawn shop has way more than $100 to sell.  Here online it's not so useful, as most collateral has to be digital.  And then there's the issue of borrowers overvaluing what they've got. 

i'm not really in agreement with this, i find that account are a very good collateral, to use online, other form of collateral can be more dangerous, but account hold their value quite well

[Firedude]

The collateral is normally worth more so the buyer will return.

[Zicadis]

If you have a good bticontalk account, but you want to keep on using it for long term. You need some bitcoin to spend now, you can borrow with the account. When you have the funds to return the borrow, you still keep the account.

[HarryKPeters]

If you have a good bticontalk account, but you want to keep on using it for long term. You need some bitcoin to spend now, you can borrow with the account. When you have the funds to return the borrow, you still keep the account.

Well said, in most cases you don't want to liquidate your assets for a small loan so you offer some security for the lender in return. Nothing wrong with borrowing money to finance short term expenses. Having said that, I won't take a loan..

[avw1982]

I know I will recieve a lot of criticism for this post, maybe even a few neg reps.
But I believe I have a valid argument here.

Why borrow money when you could just sell the collateral in the first place?

The point of the collateral breaks down here, no matter what you say.

The reason why people borrow money is because they need/want that money. They do not want to sell what they have for the money the need/want.

It does not make sense and might even be a bit stupid to think something like,
"Oh, I need $500 to pay my bills…I have an iPad lying around let me just send that to a guy online and he will give me a LOAN, when he gets the iPad. If I pay him back he will send my iPad back to me!"

It does not make any logical sense whatsoever.
It's like buying $20 for $25.

I think the "no collateral no loan" sticky should be replaced by this post because it just makes more sense.

Maybe, just maybe it would make a bit more sense if the lender asked for <50% collateral but the 110%-115% is just plain ridiculous.

Not trolling here, I am being very serious.

Actually I will say for lenders, its an entirely different story and There are a number of reasons why lenders need to be cautious when considering taking bitcoin as collateral. For example bitcoin volatility means that their value can drop sharply and this is a real risk for lenders seeking to ensure the stability of their collateral.

[HeroCat]

May be there are not so many account buyers around, so collateral sale in fact can not be so easy. But lenders may be accept to take your account easy 

[mexicantarget]

Maybe you don't want to sell your collateral because you believe it will go higher (if it's a coin). Also, person who lends you his money will be safer.
Would you borrow without collateral to anyone?