Can someone else put up the collateral for a loan?

Question

We were talking today at work and I am curious...
Say an individual (Mary) is looking at a 20k bank loan. Mary has no assets to secure the loan. Could some else (Joe) (parent, friend, sibling,whoever) lend Mary the collateral, say a title or something in Joe's name, for the loan without being the co-applicant?
Or since Joe owns the collateral would he have to be the joint owner on the loan??
Or What other options would Mary have?

Answer 1

Joe couldn't just pledge the collateral, they would have to put it at risk.

For a 20K loan, the bank would want to add the bank's name to the car title that Joe is using for collateral. That would mean that Joe couldn't sell the car until Mary has finished paying the loan. If Joe had to sell the car, the money from the sale would go to the bank because they needed to make sure they protected the investment. The bank would also put requirements on insuring the car, again to protect their investment.

Joe would want to be listed on the loan because they would want to know if Mary was missing payments; otherwise their first notice would be when the tow truck arrives to collect the car/colleteral.

Answer 2

This would depend on the internal policies of the financial institutions. In past this arrangement was possible and was called a "Guarantee". i.e. someone stands Guarantee that the loan will be paid else he would pay the loan.

Of late this arrangement is not working well, in the sense that the Guarantor has nothing to lose if his name is not on the loan [i.e. it does not affect his credit score etc] and often resorts to techniques to not pay the loan. Depending on the regulations of the country it may or may not be easy to cash the collateral given by the Guarantor.

A better way for financial institutions and more of a standard practise is to have the Guarantor on the loan. This way if the loan defaults his credit score is at risk and future borrowing is also at risk.