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August 1, 2022

What Can Be Used As Collateral for a Personal Loan?

Collateral loans are loans that require collateral for the borrower to pledge an asset to the lender to be approved.

This collateral makes lenders more comfortable with extending a loan to a borrower. It also helps protect and lower their risk if the borrower defaults on payments.

The asset can be seized by the lender in the case of default. Collateral loans may also be called secured loans.

So, do you need collateral for a personal loan? Not necessarily. Unsecured loans don’t need any collateral, while secured loans do. That’s why secured loans are typically easier to qualify for if you don’t have good credit.

What can be used as collateral for a personal loan? Collateral for a loan can include a home, a car, or another type of property that borrowers offer up as security for the loan.

If the borrower defaults on their loan payments, the lender can seize the collateral to help compensate for the loss. This means if you put your car up as collateral, the bank can take ownership if you fail to pay.

Below are examples of items that could be used as loan collateral for a secured loan:

  • Real estate property
  • Car
  • Recreational vehicle
  • Boat
  • Jewelry
  • Collectibles

Since secured credit cards and loans are backed by collateral, they often carry lower fees, better annual percentage rates (APRs), and longer repayment periods.

If you have a personal loan with collateral, you can still use the collateral while you pay off the loan. However, if you fail to pay the borrower may take possession.

In contrast, unsecured loans do not require any collateral but usually carry higher fees and interest rates as a result. For these loans, lenders will carefully look at your credit scores, income, and other factors.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

Financial information reviewed byRoss Loehr - CFP®, MBA
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Last Updated: August 1, 2022

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