What Can You Use As Collateral for a Personal Loan?

Most personal loans don’t require collateral, but if your credit isn’t great, or you want access to lower interest rates, a secured personal loan might be worth considering. With a secured loan, you pledge something valuable as a backup in case you can’t repay.

The trade-off is straightforward: You’re taking on more risk (potentially losing an asset) in exchange for better loan terms or an easier path to approval. Here’s what you need to know about what you can use to secure a personal loan.

Table of Contents

1. What is collateral?
2. Do you need collateral for a personal loan?
3. 5 types of personal loan collateral
   1. 1. Cash or savings
   2. 2. Vehicles
   3. 3. Real estate or home equity
   4. 4. Investments
   5. 5. Personal property and valuables
4. Pros and cons of using collateral
5. FAQ

What is collateral?

Collateral is something valuable that you agree to let a lender take if you can’t repay your loan. When you use collateral for a loan, the lender places a lien on that asset. This is a legal claim that gives them the right to take it if you stop making payments.

Think of it like a security deposit on an apartment. The primary difference is that you can typically (but not always) continue using the asset while repaying the loan. But if you default, the lender can seize it, sell it, and use the proceeds to cover what you owe.

This arrangement is what makes a loan “secured.” The collateral secures the lender’s investment, giving them a safety net that doesn’t exist with unsecured loans.

Do you need collateral for a personal loan?

Most personal loans are unsecured, meaning you qualify based on your creditworthiness (your credit score, income, and debt levels), rather than pledging an asset. With an unsecured loan, the lender is essentially trusting that you’ll repay based on your financial track record.

However, collateral might come into play if:

• Your credit score is on the lower end: Lenders see borrowers with lower scores (e.g., a FICO score below 670) as riskier. Offering collateral can offset that risk and help you get approved.
• You want to qualify for a lower interest rate: Even if you could get an unsecured loan, you might save money by going the secured route.
• You’re trying to borrow a larger amount: Collateral gives lenders more confidence to extend bigger loans than they’d otherwise offer.

Secured personal loans are less common than unsecured ones, but they can be a smart option in the right circumstances. Understanding your options can help you make the the financial decision.

5 types of personal loan collateral

Different lenders accept different types of collateral, so you’ll need to verify your options before applying. Here are the most common options.

1. Cash or savings

Many banks and credit unions offer share-secured or savings-secured loans, where you use money in a savings account, certificate of deposit (CD), or money market account as collateral.

This is one of the simplest types of collateral because the value is clear-cut: No appraisal is needed, and the lender knows exactly what it’s working with.

Many of my clients with taxable investment accounts (assets not in retirement plans or IRAs) can access securitized lending, meaning they can borrow funds against their securities as collateral. I see this frequently. It makes sense to borrow instead of locking in large tax gains, for example, when you may not want or need more gains for the year.

I haven’t seen anything else used as collateral, though if you had a high-value art or jewelry piece and were confident you could pay it back, this is something to consider.

2. Vehicles

Cars, trucks, motorcycles, boats, and RVs can all serve as collateral for a personal loan. Lenders typically have requirements around the vehicle’s age, condition, and title status. (You’ll usually need to own it outright or have significant equity.)

Best Egg, for example, offers a vehicle equity loan that lets you use a paid-off car as collateral. This can help you qualify for a lower rate or a larger loan amount than you’d get with an unsecured loan. Upstart is another option for a vehicle-secured loan.

One important note: This is different from a car title loan. Title loans are short-term, high-interest products, often with APRs exceeding 100%, that can trap borrowers in cycles of debt. A vehicle-secured personal loan from a reputable lender like Best Egg is a standard installment loan with fixed payments and reasonable terms.

3. Real estate or home equity

You can technically use your home as collateral for a personal loan, but it’s not common. Most people who want to borrow against their home opt for a home equity loan or home equity line of credit (HELOC) instead, since these products are specifically designed for that purpose and often come with lower rates.

The stakes are high with real estate collateral: If you can’t make your payments, you could lose your home. For most borrowers, this level of risk isn’t worth it for a personal loan.

4. Investments

Some lenders accept stocks, bonds, mutual funds, or brokerage accounts as collateral. This can be an option if you have a sizable investment portfolio but don’t want to liquidate it.

Keep in mind that retirement accounts like 401(k)s and IRAs typically can’t be used as collateral due to federal protections on those funds. Also, because investment values fluctuate, lenders may require you to pledge more than the loan amount to create a buffer against market drops.

If your portfolio loses significant value during the loan term, the lender might ask you to add more collateral or pay down part of the balance.

5. Personal property and valuables

Jewelry, fine art, collectibles, and even household fixtures can sometimes serve as collateral. That said, you may need a professional appraisal to establish value.

Best Egg stands out here with its Secured Loan + Homeowner Discount. Instead of putting your entire home on the line, you can use permanent fixtures in your home, like built-in cabinets, bathroom vanities, and light fixtures, as collateral. This option is available only to homeowners, and Best Egg says it can provide an average APR discount of about 20% compared to its unsecured loans.

Pros and cons of using collateral for a personal loan

Before deciding whether to go the secured route, it’s crucial to weigh the trade-offs carefully.

Pros

• Accessible with lower credit scores

  Because collateral reduces the lender’s risk, you may qualify for a loan even if your credit history isn’t perfect. This can be especially helpful if you’ve been turned down for unsecured loans.

• Lower interest rates

  Secured loans typically come with lower APRs than unsecured loans, which can save you a significant amount over the life of the loan.

• Higher borrowing limits

  Lenders may be willing to offer you a larger loan amount when there’s collateral backing it up. The value of your asset directly influences how much you can borrow.

Cons

• Risk of losing your collateral

  If you can’t keep up with payments, the lender can take your collateral. Make sure you’re confident in your ability to repay before putting something valuable on the line.

• May require extra paperwork

  Depending on the type of collateral you use, you may need additional documentation, such as appraisals for valuables, title verification for vehicles, proof of ownership, and so on. This can slow down the approval and funding process compared to unsecured loans.

• Collateral restrictions

  You may face limitations on what you can do with your collateral. For example, you might not be able to sell your car or make major changes to pledged fixtures until the loan is paid off. You might also be required to maintain insurance on the asset.

FAQ

How do lenders determine the value of my personal loan collateral?

It depends on the asset type. For vehicles, lenders often use valuation tools like Kelley Blue Book. Savings accounts and CDs are straightforward since the value is the account balance. For items like jewelry or art, you may need a professional appraisal from a recognized organization.

Do I need to insure my collateral?

Often, yes. Lenders may require you to maintain insurance on vehicles or other valuable assets to protect their interests. If something happens to the collateral (like a car accident or fire damage), the insurance helps ensure the lender can still recover the money. You’ll likely need to provide proof of coverage before the loan is finalized.

Can I use my car as personal loan collateral if I still owe money on it?

It depends on your equity and the lender. If your car is worth more than you owe, that difference could serve as collateral, though some lenders may require a paid-off vehicle. If you owe nearly as much as it’s worth, lenders typically won’t accept it because there’s not enough value left to secure the loan.

Can I get a cosigner instead of using collateral?

Sometimes. A cosigner with strong credit can help you qualify for an unsecured loan instead. However, not all lenders allow cosigners, so it’s important to shop around and compare several loan options. If you don’t have collateral and can’t find a lender that accepts cosigners, you may need to focus on building your credit before applying.

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