What Can Be Used As Collateral for a Personal Loan?

Many people think of personal loans as unsecured loans—loans you can get based on your credit profile alone. But secured personal loans are available that offer competitive interest rates if borrowers put up personal loan collateral.

A report from the Federal Reserve Board showed that the total personal loan market reached $356 billion at the end of 2022. This increase is due to more loan availability through traditional lending institutions and new financial technology (fintech) companies changing the personal loan landscape.

Because consumers can use personal loans in many different ways, they are a popular financial product. If you’re interested in applying for a secured personal loan but don’t know what you can use as collateral, keep reading to see what assets you can use as personal loan collateral, what documentation to bring, and the benefits and risks to consider before applying. 

Do you need collateral for a personal loan?

The two main types of personal loans are secured and unsecured. You don’t need collateral for unsecured personal loans. However, if you apply for a secured personal loan, you will.

The difference between secured and unsecured loans is that with secured loans, all lenders have is your promise to repay your loan. They review your credit history and credit score to assess the likelihood of you repaying the loan. With an unsecured loan, the lender can’t take anything to recoup its losses if you stop making payments.

With a secured loan, you agree that the lender can take ownership of your collateral if you can’t repay the loan. One of the most common examples of a secured loan is a mortgage. If you can’t make your mortgage payments, the bank can foreclose on your house and take ownership of it. 

The same applies to a secured personal loan and your collateral, also called an asset. In sum, you agree to part with your asset if you can’t pay your loan.

Examples of personal loan collateral

Here are examples of the types of assets you can use as collateral for a personal loan.

Type of personal loan collateral	Example
Real estate	Houses, land, commercial property, and mobile homes
Equipment	Farm equipment, machinery, and computers
Valuables	Jewelry, antiques, collectible cards, artwork, and rare coins
Vehicles	Cars, trucks, vans, and boats
Cash and other investments	Cash, stocks, bonds, mutual funds, company equity, and gold

Banks and lenders prefer collateral they can liquidate quickly, like stocks. Cash, stocks, bonds, and mutual funds have a clear value you can show on bank statements.

However, if your collateral falls into the valuables category, it’s wise to bring appraisal documents or authentication certificates to show your lender.

How to choose assets for collateral

Consider the following when choosing assets for personal loan collateral, including your lender requirements, the value of your assets, and your risk of losing ownership.

Ask about lender requirements

When applying for a secured loan with a lender, ask whether they have specific rules or requirements when it comes to collateral. For example, if they have a list of assets they’ll accept as collateral, that’s an excellent place to start when determining what to choose as your collateral.

Determine the value of your assets

Some assets, such as art, jewelry, antiques, and collectibles, can be more challenging to value. If you plan to use those items as collateral, ask your bank whether it needs appraisal forms showing how much they are worth. 

Ask your lender whether it prefers specific organizations to provide appraisals. For example, the Gemological Institute (GIA) is a leader in appraising jewelry.

Weigh the risks

Some items may be more valuable to you for sentimental reasons. If so, weigh the risks of having to forfeit them if you can’t meet your financial obligations. Don’t put up anything for collateral you don’t want to lose. There’s always a risk you won’t be able to make your payments due to an unforeseen circumstance or a financial emergency.

Another risk to consider is the negative impact on your credit score if you default on your loan. 

Your assets may also fluctuate in value during your loan term. 

Benefits to securing a loan with collateral include getting lower interest rates than you might with an unsecured loan or increasing your chances for approval.

Our expert’s advice

Erin Kinkade

CFP®

I recommend speaking with the lender to gain a better understanding of what it prefers for approval while discussing the considerations of the value of the asset. The lender should be well-versed in this area and so should be able to provide advice on the assets you have and what would be most appropriate in terms of collateral and the associated amount of the loan.

How to secure a loan with collateral

Here are the steps you can take to secure a loan with collateral.

1. Provide documentation about the assets you have. That might mean bringing the deed to your house, the title to your car, investment account statements, or appraisal forms for valuables.
2. Make sure you understand your loan terms once a lender approves your asset as collateral. Before signing documents, check the loan amount, interest rate, repayment schedule, and other requirements listed. 
3. Ask your lender as many questions as necessary to feel comfortable with the agreement. If you work with a lender face to face, you might even have the opportunity to negotiate on terms such as the interest rate and the value of your assets.
4. Don’t settle. Compare multiple lenders to ensure you get access to the best rates and terms. Federal law requires lenders to be transparent about their terms and penalties so you can compare them.
5. Sign a formal agreement once you choose a lender and agree to all the terms. This loan agreement should outline what happens if you can’t make your payments, including how the transfer of ownership of your collateral would occur. 

Alternatives

If you don’t have collateral to get a secured loan, consider these lending options.

Home equity lending products

If you’re a homeowner and have equity in your home, you can access it through various lending products. 

Some of the most common options are a home equity line of credit, a home equity loan, and a home equity investment. These can give you access to cash, but drawbacks include the potential to lose your home if you don’t make your payments.

Peer-to-peer lending

You can apply for a loan through one of several peer-to-peer lending platforms, which is when consumers loan money to other consumers.

Add a cosigner or co-borrower

If you don’t have personal assets to apply for a secured loan, you can ask a spouse or a family member to cosign or co-borrow the loan with you. As a cosigner, they are responsible for the loan if you don’t make your payments, so it should be somebody who trusts your ability to handle money. Co-borrowers are equally responsible for repayment.

Apply for an unsecured loan

If you don’t have collateral to apply for a secured loan, you can still apply for an unsecured loan, especially if you have good credit. Your interest rate might be less competitive than a secured loan, but you may be able to access the cash you need.

Open a credit card

Credit cards tend to have higher interest rates than personal loans, but many offer credit at a low introductory APR during promotional periods. This can be helpful if you want to access funds you plan to pay back before the promotional period ends.

FAQ

Can I use my own money as collateral for a loan?

In certain circumstances, you can use your money as collateral for a loan. In cases such as secured savings loans or share-secured loans, borrowers can use their savings accounts or certificates of deposits as collateral. This reduces risk for the lender by ensuring something of equal value to fall back on should you fail to make payment.

How much money do you need as collateral for a loan?

The amount you need as collateral depends on the size of the loan you’re seeking. Lenders often want collateral that equals or surpasses the value of the loan. However, certain lenders may require more than 100% collateral coverage, particularly for borrowers with less-than-stellar credit. It varies by situation and lender.

Can I get a personal loan with bad credit if I have collateral?

Yes, it’s possible for a person with bad credit to secure a personal loan with adequate collateral. Proving to a potential lender that you have valuable assets to put up as collateral can increase your odds of approval. However, remember that if you default on the loan, you risk losing that collateral. Make certain you can afford the payments before going this route.

Can I get a personal loan without collateral?

Yes, you can obtain a personal loan without collateral. These are known as unsecured loans, where your credit score and income are the primary considerations for approval, not collateral. The lender relies on your promise to repay. These loans often feature higher interest rates due to the increased risk the lender takes on without any collateral backing the loan. Keep this in mind as you consider your lending options.