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Personal Loan With Land as Collateral: Is It Possible?

Can I Get a Personal Loan With Land as Collateral?
Jason Steele
Jason SteeleUpdated March 14, 2023
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If you are applying for a secured personal loan, you will likely need to use an asset as collateral. If you own land, you may be able to get a personal loan with land as collateral. However, while using land as collateral for a personal loan is possible, it can be complicated and there are risks involved. It’s important to understand what the process entails.  Read on to find out what you need to know before taking out a personal loan with land as a collateral.

Personal Loan Collateral

There are two types of personal loans — secured and unsecured. An unsecured personal loan doesn't require collateral, while secured loans are collateralized personal loansIf you’re wondering, can I get a personal loan with land as collateral, the answer is yes. Collateral is property or an asset you use when applying for a loan. It’s usually something like a car, house, or land, but other items you own, such as jewelry or antiques, may be accepted by a lender as collateral. Essentially, the collateral secures the loan and can be repossessed by the lender if you are unable to make your loan payments. Secured loans are typically easier to qualify for and generally have lower interest rates than unsecured loans. That’s because the collateral you put up makes it less risky for the lender to lend you money. If you fail to repay the loan, they can take the collateral.There are many personal loan benefits, including the fact that these loans can be used for virtually any purpose. You can use them to make a major purchase, pay medical bills, or consolidate debt. Personal loans are generally very flexible.

What Is a Land Equity Loan?

A land equity loan is when you borrow money against equity in a piece of land you own. Land equity loans are similar to home equity loans, in which you borrow money against the equity in your home. You can take out a land equity loan if you own a plot of land or if you have a land loan, which is a loan specifically used to finance the purchase of a piece of land. Land can be bought using land loans or personal loans

When Do People Use Land as Collateral

You can get different types of loans using land as collateral, though it can be challenging. Some lenders don’t accept land as collateral. Others may require the land to be worth a certain amount. Always check with a lender to see if they accept land as collateral before applying. If you are building something on your land and you need to finance its construction, you may be able to use the land as collateral for a personal loan or a construction loan. Construction loans are usually tied to the schedule of the construction work that’s being done, so if you take out one of these loans you will get the money in stages as your contractor completes various construction milestones. 

How Do You Use Land as Collateral for a Personal Loan?

To use land as collateral for a personal loan, you will need to provide proof that you own the land and that there are no existing liens (legal claims made on the property when there is unpaid debt) on it. The lender will then determine the value of the land, and if it’s acceptable to them, they will put a lien on the land in exchange for a personal loan.  If you don’t make your loan payments, the lender can foreclose on the property and sell it to pay the debt you owe. It’s important to understand that you are risking your property if you use land as collateral for a personal loan. You’ll want to be certain you can make your payments on time before taking out the personal loan.

Determining the Value of the Land

The lender needs to know the value of the land you intend to use as collateral before they will approve you for a loan. A real estate appraiser can appraise the land to determine its worth. The lender may use a low land-to-value ratio to determine how much money you are eligible to borrow with a personal loan. A land-to-value ratio means the lender will approve you for a certain percentage of the value of the land. So, for instance, if the land is worth $150,000, the lender might approve you to borrow just $50,000.

Will the Condition of the Land Impact Your Personal Loan Amount?

Vacant land and with structures on it can be used as collateral for personal loans. However, vacant land is usually seen as riskier by lenders than land that is already in use. Vacant land doesn’t have an immediate economic worth because it has to be sold to get any value from it. It can also be a burden since property taxes need to be paid on it even though the land is empty. Both vacant and non-vacant land will need to be appraised to determine their value before a loan is approved. 

What Can Be Used as Collateral for a Personal Loan?

If you are thinking of applying for a secured personal loan, you should know what can be used as collateral for a personal loan. Assets like houses, cars, fine art, and jewelry can be used as collateral. Most assets of high value will be accepted as collateral for a loan. Some personal loans also let you use savings accounts as collateral. Banks and credit unions are most likely to accept sayings accounts as collateral for loans. It is also possible to use your life insurance policy as collateral for a loan. When you take a personal loan against life insurance, you appoint the lender as an assignee of the policy. If you default on the loan, the lender could collect on the cash value of the life insurance policy.

The Takeaway 

It’s possible to use land as collateral for a personal loan, but it is typically not easy. Some lenders will accept land as collateral, but you should always check to make sure they do before applying for a loan. In addition, there are many steps you will have to go through in order to get a loan with a land as collateral, including having the land appraised.Using land as collateral for a personal loan can be risky. Just like anything you use as loan collateral, you could lose the land if you don’t make your loan payments on time. That’s why it’s important not to take out a larger loan than you can afford, and to be absolutely sure that you can consistently make payments on the amount you do borrow. Whether you are shopping for a personal loan secured by collateral or unsecured personal loan, Lantern can help guide you through the process. By filling out one simple form, you’ll get offers from multiple lenders all in one place, which makes comparing the personal loan rates faster and easier.

Frequently Asked Questions

How can I use land as collateral for a personal loan?
What kind of loan can I get with land as collateral?
How does using land as collateral work?
Photo credit: iStock/claylib

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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