Find out what you can use as collateral for a secured loan.
There are clear benefits for a lender when you provide collateral for a secured loan. But what about for you?
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 secured 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.
A deeper dive into how secured loans work
When should I consider a secured loan?
You might want to consider backing your loan with collateral in the following situations:
- You don’t have good credit. This typically means a score below 680.
- You already have a lot of debt. You’ll have trouble finding any personal loan with a debt-to-income ratio (DTI) above 43%. But even if it’s just under that number, you might not be able to qualify for unsecured financing.
- You own a valuable asset (or assets). Your collateral is key to a secured loan. Owning a home, a car — without any debt — makes you eligible for larger loan amounts.
- You’re a sole proprietor. If your business is a one-person show, you might have trouble proving you have steady income to a lender.
Why do some loans require collateral?
It reduces the risk to the lender. 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 real estate
- Home equity
- Personal vehicles
- Paychecks
- Cash or savings accounts
- Investment accounts
- Paper investments
- Such valuables as fine art, jewelry or collectibles
- Blanket lien
- Business or personal real estate
- Home equity
- Business property like machinery or specialized equipment
- Business or personal vehicle
- Farm assets and products
- Accounts receivable
- Inventory
- Natural reserves
- Insurance policies
- Investment accounts
- Paper investments
- Business savings accounts
- Such valuables as fine art, jewelry or collectibles
- The vehicle you’re purchasing
- Personal vehicles you already own
- Home equity
- Investment accounts
- Paper investments
- Cash or savings accounts
Determining the value of your assets
Lenders typically offer you less money than the value of the asset you’re putting up as collateral — usually between 50% and 90% — though it can be even lower depending on the lender and the type of asset you’re using.
For example, if you’re using an investment portfolio as your collateral, in order to factor in the volatility of the investment, a lender might only offer you 50% of the value of the investments, just in case they lose value during the term of your loan. When it comes to borrowing against your house, lenders generally let you borrow 80% of your loan-to-value ratio (LTV). To calculate your maximum borrowing, subtract your current loan balance from your property value and then multiply this figure by 80%. With auto title loans, you’re usually offered 25% to 50% of the value of the car.
Which lenders offer secured loans?
Personal loan lenders
| Provider | Secured loans | Unsecured loans |
|---|---|---|
| Avant |  |  |
| Laurel Road | | |
| LendingClub | | |
| LendingPoint | | |
| MoneyLion | | |
| OneMain Financial | | |
| Payoff | | |
| Prosper | | |
| SoFi | | |
| Upstart | | |
Business financing lenders
| Provider | Secured loans | Unsecured loans |
|---|---|---|
| Able Lending | | |
| Bitbond | | |
| FastPay | | |
| Kabbage | | |
| LendingClub | | |
| Main Street | | |
| National Business Capital | | |
| OnDeck | | |
| SmartBiz | | |
| Swift Capital | | |
Benefits and drawbacks of using collateral to secure a loan
- 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.
- 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.
Credit reporting for secured personal loans
Just like with unsecured personal loans, the lender you take out a secured personal loan with will report your payment history to the three credit bureaus: Experian, Equifax and TransUnion. If you make any late payments or default on the loan, it will remain on your credit report for 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, except you don’t need to take the extra steps involved with appraising your collateral or providing proof of ownership.
You can typically get an unsecured personal loan with competitive rates if you have:
- Good or excellent credit
- Steady income from a full-time job
- A low DTI
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.
I’m in Africa zambia, can I be able to borrow?
Hello Mr. T,
Thank you for your comment.
You may need to check with your local lenders as the products featured on our pages are offered to American citizens and residents only.
Regards,
Jhezelyn
What can I use as a personal item with serial number for a loan ?
Hi Kay,
Thanks for leaving a comment on finder.
We have outlined the usual acceptable collaterals for each loan type above. It is not necessary for your collateral to have a serial number. As long as it has value, then it would be acceptable. Please note that most lenders will not accept electronic devices since they depreciate in value real quick.
Cheers,
Joel
Can I use tv’s or phones for collateral?
Hello Katrina,
I’m afraid TV or phones could not be considered as loan collaterals as they are low in value and easily depreciates in a short span of time. Most of the acceptable collaterals either do not depreciate or have high value. Generally acceptable collaterals are listed on this page for your perusal.
Hope this helps!
All the best,
Ron