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What Can Be Used as Collateral for a Personal Loan?

What Can Be Used as Collateral for a Personal Loan?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated February 3, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Homes, vehicles, stocks, bonds, jewelry, future paychecks, fine art, life insurance policies, and cash in a savings account are among the many forms of property that can be used as collateral for a personal loan. Almost any asset or personal property of value can serve as collateral, and borrowers may offer collateral when applying for a consumer lending product.Borrowers can pledge collateral as a guarantee they will repay a personal loan, and lenders may seize the collateral if a borrower defaults on the collateralized or secured loan. Below we provide additional information about collateral and highlight the pros and cons of secured personal loans vs. unsecured personal loans.

What Is Collateral?

Collateral is any asset or personal property that you pledge to a lender for a secured loan. As mentioned above, homes, vehicles, stocks, bonds, jewelry, future paychecks, fine art, life insurance policies, and cash in a savings account can be offered as collateral.Secured loans are backed by collateral, and lenders have a right to seize the collateral if borrowers default on their loan.

Do All Personal Loans Require Collateral?

Some personal loans may require collateral as a condition of loan approval, but most personal loans are unsecured lending products that do not require collateral.Borrowers with poor credit scores may have an easier time qualifying for a personal loan if they offer collateral, because collateral reduces risk to lenders and serves as security on the borrower’s obligation to repay the loan.

Secured vs Unsecured Personal Loans

Here are the pros and cons of secured and unsecured loans:

Types of Collateral That You Can Use

Here are the various types of collateral that you may use when taking out a secured loan: 

Home

Homeowners may use their home as collateral when seeking a secured loan. The risk of offering your home as collateral is you may lose your home to foreclosure if you default and fail to repay the loan.Using your home as collateral may allow you to borrow large sums of money against the available equity in your home. Some lenders may allow you to borrow up to 80% of the equity in your home.

Vehicles

Anyone who owns a motor vehicle may use their vehicle as collateral when seeking a secured loan. The risk of offering your vehicle as collateral is the lender may seize your vehicle for repossession if you default and fail to repay the loan.Using your vehicle as collateral can provide you with quick cash and an easy way to borrow money. Lenders, however, may require borrowers to have full ownership of the vehicle as the titleholder and may restrict borrowing amounts to 50% of the vehicle’s value or less.

Stocks

Stockholders may use eligible stock as collateral when seeking a secured loan. The risk of offering stock as collateral is the lender can claim and keep your stockholdings if you default on the loan.Using stock as collateral can provide you with fast cash at low rates of interest, and you may use the funds to pursue new investments or make large purchases. Stockholders can offer nonmarginable stocks as collateral and borrow money without undergoing a credit check, but lenders may place limits on how much stock you can pledge as collateral.

Bonds

Bondholders may use eligible bonds as collateral when seeking a secured loan. The risk of offering bonds as collateral is the lender can sell your bonds if you default on the loan.Using bonds as collateral may provide you with quick cash for large purchases. Lenders may consider corporate bonds, municipal bonds, and U.S. Treasury bonds as collateral for a loan, but some lenders might be reluctant to accept corporate bonds as collateral.Treasury bonds are backed by the full faith and credit of the federal government and are widely considered very safe. Municipal bonds carry some risks but are often perceived as safer than corporate bonds.

Jewelry

Fine jewelry made with precious metal and authentic gemstones, including engagement rings and luxury watches, can serve as collateral for a secured loan. The risk of offering jewelry as collateral is the lender can hold and sell your jewelry if you fail to repay the loan. Using jewelry as collateral may provide you with a lump sum of money to spend on personal needs. Lenders who accept jewelry as collateral may include pawnbrokers who offer short-term loans.Banks might be willing to accept jewelry as collateral, particularly if the pledged jewelry is of high value.

Fine Art

Fine art owners can offer their assets of art as collateral for a secured loan. The risk of offering fine art as collateral is the lender may sell your art collections to compensate for any losses caused by a default. Borrowers could also be forced to pay outstanding debts that may arise if the lender receives insufficient funds from selling the collateral.Using fine art as collateral may provide you with tens of thousands of dollars to spend on personal wants and needs. Some lenders may offer millions of dollars in secured loans backed by fine art.

Collectibles

Collectibles of high value, including rare coins, fine wine, and expensive baseball cards, can serve as collateral for a secured loan. The risk of offering collectibles as collateral is the lender may repossess your collateral if you default on the loan.Using collectibles as collateral can provide you with quick cash from a lender who may disburse the funds without conducting a credit check. Some pawnbrokers may offer million-dollar loans in exchange for high-end collectibles as collateral.

Precious Metals

Owners of any precious metal, including gold, silver, and platinum, may offer their precious metal as collateral for a secured loan. The risk of offering precious metal as collateral is the lender may sell the collateral if you default on the loan.Using precious metals as collateral may provide you with large sums of money, but lenders may reduce their risks and provide you with a secured loan that amounts to 80% of the appraised value of your collateral. For example, lenders may loan you $8,000 if you offer them $10,000 in precious metal as collateral.

Future Paychecks

Workers may offer their future paychecks as collateral for a secured loan. The risk of offering future paychecks as collateral is the lender may garnish your wages if you fail to make a timely repayment on the loan.Using future paychecks as collateral may provide you with quick cash, but lenders may demand quick repayments and may also charge you high fees as a condition of loan approval.

Antiques

Antiques, such as typewriters, old watches, and grandfather clocks, can serve as collateral for a secured loan. The risk of offering antiques as collateral is the lender may keep your collateral or sell it if you fail to repay the loan in full.Using antiques as collateral may provide you with quick cash, but such loans may include short terms giving you several weeks or months to pay off the principal and interest.

Life Insurance Policies

Life insurance policyholders can use their life insurance policy as collateral for a secured loan. The risk of using your life insurance policy as collateral is you may lose your life insurance policy if you default on the loan.Life insurance policyholders can initiate a collateral assignment transferring their life insurance policy to a lender as collateral for a secured loan.Lenders may collect the cash value of your life insurance policy if you default on the loan, or they may receive a portion of your death benefit if you die before paying off the loan in full.

Cash in Savings

Cash in a savings account can serve as collateral for a secured personal loan. The risk of using cash savings as collateral is the lender may seize your savings as compensation if you fail to repay the loan in full.Using savings as collateral may allow you to borrow the full value of your savings account with a lengthy repayment term up to 15 years, but some lenders may limit your loan amount to a certain percentage of your total savings.

Cash in Certificates of Deposit

Cash in a certificate of deposit, also known as a CD, can serve as collateral for a secured loan. The risk of using CDs as collateral is the lender may seize the funds in your CD if you default on the loan.Using CDs as collateral may provide you with quick cash for meeting personal expenses, but the total cost of repaying a CD loan might exceed the financial penalty you may incur from withdrawing your CD savings prematurely through an early withdrawal.

What Happens if You Default on a Secured Loan?

As mentioned above, lenders may seize any assets or personal property you’ve pledged as collateral if you default on a secured loan. All secured loans are backed by collateral, and lenders can sell your collateral as compensation if you fail to repay the loan in full.Consumers may have multiple reasons to consider a personal loan, and one of the reasons to consider a secured personal loan is it may include lower interest rates than unsecured personal loans.Pledging collateral can also bolster your chances of getting approved for any consumer lending product. Borrowers with poor credit may have an easier time qualifying for a secured personal loan vs. an unsecured personal loan, because secured personal loans are backed by collateral that reduces some of the risk for the lender.

The Takeaway

Lenders may seize collateral as compensation if borrowers default on a secured loan, but some lenders may also be willing to negotiate a loan modification agreement that can cure a default and help borrowers repay the loan without losing their pledged collateral asset.When you need to borrow money, Lantern by SoFi can help you explore multiple personal loan options. Just provide basic information about yourself and the loan you need, and Lantern can guide you in the process to apply for a personal loan with the lender of your choice.
Photo credit: iStock/Kuzma
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SoFi Loan Products SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636. For additional product-specific legal and licensing information, see SoFi.com/legal.SOLC1221078

Frequently Asked Questions

What does collateral for personal loans mean?
Can you use your home as collateral on a personal loan?
Can you use your car as personal loan collateral?

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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