What Can Be Used As Collateral for a Personal Loan
Collateral loans are loans that require collateral to be approved. Collateral makes lenders more comfortable to extend a loan to a borrower as it helps protect their risk if the borrower defaults on payments.
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. So, if you put your car up as collateral, the bank can take ownership if you fail to pay.
Below we list two examples of items that could be used as loan collateral for a secured loan:
- A real estate property
- A car, vehicle, or boat
If you have a personal loan with collateral, you can still use the collateral while you pay off your loan but if you fail to pay the borrower may take possession.
In contrast, unsecured loans do not require any collateral but usually attract higher fees and interest rates as a result. For these loans, lenders will carefully look at your credit scores, income, and other factors.