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25+ types of collateral for loans

Learn about the different types of collateral for a loan in Canada, from jewelry and home equity to business machinery and vehicles.

Collateral, also commonly referred to as security, is a valuable asset that the borrower owns and uses to secure a loan. In the event that the borrower defaults on the loan, the lender has the right to seize the asset, sell it and use the proceeds to cover the owed debts. Often, using collateral for a loan leads to better rates, a larger loan amount and generally better terms because it reduces the lender’s risk. There are several types of assets you can use as collateral, depending on the lender.

What items can be used as collateral for a loan?

Not all assets can be used as collateral. Below is a list of common collateral types for specific loan purposes:

Personal loans

  • Personal real estate
  • Home equity
  • Personal vehicles
  • Cash or savings accounts
  • Investment accounts
  • Paper investments
  • Paycheques
  • Fine art, jewelry or valuable collectibles

Auto loans

  • The vehicle being purchased
  • Owned personal vehicles
  • Home equity
  • Cash or savings accounts
  • Investment accounts
  • Paper investments

Business loans

  • Personal or commercial real estate
  • Home equity
  • Business assets, such as equipment or machinery
  • Personal or commercial vehicles
  • Accounts receivable
  • Inventory
  • Farm assets and products
  • Natural reserves
  • Commercial cash or savings accounts
  • Investment accounts
  • Paper investments
  • Blanket lien
  • Insurance policy
  • Fine art, jewelry or valuable collectibles

Keep in mind that every lender is unique. One lender might accept one type of collateral for your loan while another lender doesn’t.

Frequently asked questions about specific types of collateral

How do collateral loans work?

Collateral loans are also referred to as secured loans. When a borrower applies for a collateral loan, they agree to give up a specific asset in the event that they cannot repay the loan.

In the eyes of the lender, collateral loans are favourable because there’s less risk. Even if the borrower is unable to make payments, they have the collateral as back up.

The amount of your loan depends on the value of the collateral. In addition, a portion of the collateral’s value is usually considered for the loan, not the entire value. For example, if you have a car worth $5,000 being used as collateral, your loan might be approved for 60% of that value, or $3,000. This is to provide more protection to the lender.

How much is my collateral worth?

What you use as collateral will determine the value. Generally speaking, collateral loans require more paperwork because the asset often needs to be appraised. For example, a car or an heirloom would need to be valued because an ordinary person wouldn’t know the exact worth. However, some assets are easy to value, such as saving or investment accounts. In this case, simply check the current balance.

Remember that a portion of the collateral’s value is accepted for the loan, usually between 50% and 90%. The exact percentage depends on the asset and lender.

Does collateral have to equal the loan amount?

No, collateral used for loans doesn’t have to be exactly equal to the borrowed amount. However, the collateral must exceed the loan amount value. If your collateral is worth less than the amount you want to borrow, you’ll have trouble getting approved.

What is LTV?

LTV stands for loan-to-value ratio. This is a simple calculation that lenders use to calculate the percentage of your debt relative to the value of your assets. The ratio communicates how much of your assets you truly own versus the amount of debt outstanding against them. The more assets you fully own, the more favourable you are in the eyes of lenders.

Which lenders offer collateral loans in Canada?

In general, all lenders should accept some form of collateral. Collateral loans, or secured loans, are much safer for the lender so there’s little reason for them to reject collateral. With that being said, the type of collateral that’s accepted can vary from lender to lender.

Compare secured collateral loans

Name Product Interest Rate Loan Amount Loan Term Fees Credit Score Link
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
No application or origination fees
Min. credit score: 300
Go to site
More Info
An online broker with the largest lender network in Canada. Get matched with lenders for free through one quick application regardless of your financial situation.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 9.90%-46.96%
$500 - $50,000
3 - 60 months
No application or origination fees
Min. credit score: 300
Go to site
More Info
An online broker who helps educate clients towards better finances. Get pre-approved by different lenders in 5 minutes with any credit score.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$5,000 - $50,000
36 - 120 months
Varies by province
Min. credit score: 560
Go to site
More Info
Use your home equity to borrow up to $50,000 with flexible repayment options and a long loan term. Get a quote without impacting your credit score.
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Compare up to 4 providers

What to expect when applying for a loan with collateral

There is usually more paperwork involved with secured personal loans compared to unsecured loans. Not only do you need to get the asset valued, you will be required to provide specific details and documentation related to the asset. This can make the application process longer as opposed to an unsecured loan.

When you use collateral, you run the risk of losing that asset if you default on the loan. Be sure that you’re willing to part with the collateral before using it to secure a loan.

Benefits and drawbacks of using collateral for a loan

  • Increased odds of approval. Since the lender takes on less risk with a collateral loan, you have a better chance of being approved.
  • Lower interest rates. Because collateral loans are less risky, the interest rate is typically lower.
  • Better terms. The terms tend to be more favourable with a collateral loan too. This could be a longer term, higher loan amount or better repayment terms.
  • Bargaining chip. If you receive an offer from a lender that doesn’t include everything you want, you can use collateral to negotiate.
  • Repossession. In the event that you default on the loan, the lender has the right to repossess the collateral and sell it to use the proceeds to cover the debt. Even though no one plans for repossession, it can happen to anyone.
  • Longer term. Longer terms mean lower payments, but higher interest and risk of negative equity. Even though a longer term is possible with collateral, that doesn’t mean it’s necessarily the right choice.
  • Overspending. When taking on a new loan, you should always consider if you’re overspending. The more financial obligations you have, the greater the risk of default.

Credit reporting for secured personal loans

Just like with unsecured personal loans, the lender will report your payment history to the two credit bureaus: Equifax and TransUnion. If you make any late payments or default on the loan, it will remain on your credit report for six or seven years from the date of the original missed payment. However, if the collateral tied to your secured personal loan is repossessed or confiscated, this will add even more negative marks to your credit history.

How to get a personal loan without collateral

Not sure you want to put your house, car or grandmother’s silver on the line? Unsecured personal loans are actually more common than secured loans. The application process is nearly the same. The only difference is you don’t need to identify, value and provide additional documentation about collateral.

You can typically get an unsecured personal loan if you have:

  • Good or excellent credit, which is usually a score of 650 or higher.
  • Steady income from a full-time job.
  • A low debt-to-income ratio.

Bottom line

There are a variety of options when it comes to taking out a personal loan, whether you decide to secure it with collateral or go with an unsecured loan. When looking into a secured loan, consider your ability to repay the loan very seriously before taking one out. Defaulting on a secured loan means more than just damaging your credit score – you could also lose the asset you put up for security.

If a secured loan doesn’t exactly fit your needs, you can consider unsecured loans that don’t require collateral.

Frequently asked questions

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