What do lenders accept as collateral for loans?

Find out what you can use as collateral for a secured loan.

There are clear benefits for a lender when you provide collateral. But what about for you?

For one, lower interest rates can go hand-in-hand with a loan that’s secured with collateral. And if you have less-than-perfect credit, collateral could make your application more attractive to a lender.

With lower interest rates and more lending options than you might otherwise have, providing collateral might sound appealing. But what do lenders accept as collateral for loans?

What is a secured loan?

When a borrower guarantees their loan payments by offering up an asset or property as collateral, the loan is secured. The collateral is an item or property that can be taken if the borrower fails to pay back the loan within its terms.

By securing a loan, you’re reducing some of the risk assumed by the lender. When you’re struggling to find a loan with reasonable terms, securing one with collateral could be an option to help you find a lower APR.
Compare secured vs. unsecured loans

Why do some loans require collateral?

Lenders specializing in business loans typically want collateral of some kind to minimize their risk of taking you on as a borrower.

If your small business is new or hasn’t yet found its footing, you may not have the revenue to assure a lender that you’re able to keep up with potential payments. Promising an asset or property that’s worth the cost of the loan cuts that risk down.

The same principle applies to complex loans like those for cars, homes or even large personal purchases. All such loans can require collateral to ensure some form of repayment. Sometimes the collateral is the car, home or item you’re buying with the loan.

Collateral accepted by loan type

Personal

Business

  • Blanket lien
  • Business or personal real estate
  • Home equity
  • Business property like machinery or specialized equipment
  • Business or personal vehicles
  • Farm assets and products
  • Accounts receivable
  • Inventory
  • Natural reserves
  • Insurance policies
  • Investment accounts
  • Paper investments
  • Cash or savings accounts
  • Such valuables as fine art, jewelry or collectibles
Auto

  • The vehicle you’re purchasing
  • Personal vehicles you already own
  • Home equity
  • Investment accounts
  • Paper investments
  • Cash or savings accounts

Which lenders offer secured loans?

Personal loan lenders

ProviderSecured loansUnsecured loans
AvantNoYes
Laurel RoadNoYes
LendingClubNoYes
LendingPointNoYes
MoneyLionNoYes
OneMain FinancialYesYes
PayoffNoYes
ProsperNoYes
SoFiNoYes
UpstartNoYes

Business financing lenders

ProviderSecured loansUnsecured loans
Able LendingNoYes
BitbondNoYes
FastPayYesNo
KabbageYesYes
LendingClubYesYes
Main StreetYesYes
National Business CapitalYesYes
OnDeckYesYes
SmartBizYesNo

Benefits and drawbacks of using collateral to secure a loan

Pros

  • Increases chance of approval. We’ve talked a lot about mitigation of risk. That reduction is what can increase your chances of approval. Even if you don’t have a perfect credit score, you have something that is valuable enough to pay back the amount of the loan if you find yourself unable to.
  • Lower interest rates. When you have an excellent credit score, you’ll often see premium rates from lenders. While you may not have the best score, providing security could get you a better interest rate as a result of the lowered risk to the lender.
  • More wiggle room. It’s always good to have room to negotiate. With increased chances of approval, lower interest rates and longer terms, you can often get terms that fit your budget. Cutting down the length of the loan might give you a lower overall cost, while extending it can afford you smaller monthly payments.
Cons

  • Repossession. Defaulting on a secured loan means losing whatever that security is. A necklace from your great grandmother, your car or even your home can be taken if you promised them to the lender. While no one plans on not paying off their debts, life happens. Losing the collateral you put up could potentially end up making a bad situation worse.
  • Overspending. Security generally affords you a little more leeway. This could be dangerous, though. Taking out more money than you need can mean additional interest payments. If you’re tempted to grab that extra cash to treat yourself, you might want to consider the whole of your financial wellness first.
  • Longer term. A longer repayment period can sound like a great advantage if you want to lower your monthly payments. However, it also means paying more interest over the life of the loan. A higher overall cost to your loan may not be worth the extra wiggle room from month to month.

Bottom line

There are options aplenty when it comes to taking out a personal loan with or without securing it. 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 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

You might be. The requirements vary by lender, but you may be able to get a secured loan with less-than-perfect credit if your asset matches the lender’s criteria and you can prove your ability to repay the loan. Otherwise, you can consider bad credit personal loans.

In the case of personal loans, you can usually use the loan for any legitimate purpose. Car loans are typically restricted to cars or other recreational vehicles. Business loans are generally for business purposes only.

Different lenders require different information and documentation. Generally you’ll need to provide your personal contact information, Social Security number, date of birth, bank account information and employment and income information. For a business loan, you’ll also supply relevant information about your business.

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