What Can Be Used as Collateral for a Loan: Everything You Need to Know


Denied.

It’s a difficult word to swallow, especially if you urgently looking for a personal secured loan from a lender.

The truth is, approval for any loan can be a difficult process.

There are often a lot of loan options to choose from with varying interest rates. And you may often have a difficult time choosing between a secured or unsecured loan.

It also might be difficult to find any type of loan with a bad credit score and limited collateral.

So, how do you know what’s best in terms of a loan’s rate and term? How do you get qualified for a loan with a bad credit score?

It’s by discovering the types of collateral loans and can qualify you for a personal secured loan.

Collateral loans give lenders more security. They feel more at ease with credit and lending requirements when it comes to a personal secured loan that is based on collateral.

Here’s what you need to know when it comes to the collateral you can use for a loan.

The Types of Collateral Loans

House Collateral Loan

A house is a common form of collateral for a secured loan because it offers lenders a lot of security.

It also gives entrepreneurs and business owners the opportunity, especially with housing prices on the rise, a chance to secure a valuable loan. Given that many homes are worth hundreds of thousands of dollars, that gives entrepreneurs significant financial leverage.

You should, however, also be aware of the warning signs if you fail to make a payment on your personal secured loan that is using your home as collateral.

For instance, banks can foreclose on a home that hasn’t made their mortgage payment. In a way, the mortgage acts as collateral on the loan.

In essence, this kind of collateral for a loan also puts you at risk of losing your home.

In addition, a second mortgage can be taken out to borrow against the home’s equity. It gives the borrower more financial flexibility in case they need more funds after the initial first mortgage.

Secured Car Loan

Beyond a home collateral loan, another option is a car collateral loan. Lenders will estimate the value of your car from Kelley Blue Book, which examines the condition of your car and how much value it holds.

The purpose of a secured car loan as collateral for lenders is to give you a better opportunity o secure a personal loan. You’ll find that many banks and credit unions offer car equity loans.

However, you should be aware of the high APR with many secured car loans.

Even if you are approved for a secured car loan, it’s important to check the interest rates and how long it will take to pay off the loan.

Equipment

If you want to avoid taking out your home and your car as collateral, you should consider your business or personal equipment and the value it holds.

For any kind of equipment, you need to assess its value if it’s heavy machinery or computers.

Some lenders are reluctant to give you the financial assistance you need because a lot of equipment depreciates over time.

Just keep in mind that if you default on any of your payment it increases the risk that you lose your business equipment to the lenders of your personal secured loan.

Investment

Your investment such as stock or portfolio can be used to qualify for a personal secured loan.

You’ll find that investment as collateral for loans is called securities-based loans or stock-based loans.

With your portfolio, a lender may extend the credit up to the full amount of the portfolio, which means you may have more financial flexibility given the value of your portfolio in that specific period of time.

Under certain circumstances, you may find that your portfolio could dip in value depending on its value in the market. If a lender decide to call in the loan, it could cause you to pay extra to make up the deficit.

Before you decide on an investment loan, make sure you to do the proper research on the value of your portfolio and stocks, that way you are sure to get the best personal secured loan and you are aware of how much could be paying back.

Inventory

Similar to equipment in value and how it depreciates over time, inventory type of collateral also applies the same way.

Your personal secured loan will depend on the value of your inventory. Again, similar to equipment, you’ll be at risk of losing your inventory if you default on any payment. The leniency will depend from lender to lender.

Asset-Based Lending

Asset-based lending looks at specific criteria to give you access to a line of credit in order for cash flow needs.

Many rapidly growing businesses need this kind of capital to keep up with demand.

You can also find more info about financial loans, specifically asset-based loans.

If you are trying to obtain an asset-based loan, you’ll need to know that the requested collateral is accounts receivable, inventory, business equipment, and trademarks and other equipment.

What Collateral Should You Use?

Beyond the options listed in this article, you can also find a lot of other types of collateral for a personal loan, business loan, and auto loan.

You’ll find that the types of collateral you can use for a loan all depend on the lender and the kind of loan you are looking for. It depends on the term and the rate you’ll receive.

But ultimately knowing your collateral gives you more options to give you the loan that you are looking for. Collateral represents something of value that lenders can have in case you are delinquent on payments.

For you, it gives you more financial flexibility, more business freedom in terms of financing, and a clear understanding of how to obtain a personal secured loan with collateral.

Jeff Campbell

Jeff Campbell is a husband, father, martial artist, budget-master, Disney-addict, musician, and recovering foodie having spent over 2 decades as a leader for Whole Foods Market. Click to learn more about me

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