Collaterals in Personal Loans: What Can I Use?

There are many reasons you may want to obtain a personal loan. From consolidating your debt, paying off medical bills, to even covering home or vehicle repairs—personal loans are an effective financial tool in more ways than one.

Usually, personal loans are unsecured, so you won’t require collateral. However, some lenders require some personal loans to be backed by items that hold significant monetary value to protect the lender. With that, there is a bunch of collateral that you can use for your secured loans, such as cash in your savings account, your home, and your car.

If you’re thinking of getting a small personal loan, keep reading. In this article, we’ll share more information about collaterals for loans—what you can use and their pros and cons. Let’s take a look!

What is Collateral?

To simply put it, collateral is an asset that you can offer to a lender to qualify for a personal loan. You help a lender feel more comfortable extending a loan by providing collateral since it serves as a security for their financial stake, especially when you fail to repay your loan in full.

When the borrower defaults on a loan, the lender can easily obtain your collateral to compensate for financial loss. For example, if you cannot pay for the loan and put your car as collateral, the lender can easily take ownership of your car.

Since your loan is backed by collateral, secured loans often offer lower annual percentage rates and shorter payment periods. However, if you’re unable to keep up with the payment terms, note that you could end up losing your collateral.

How Does Getting a Personal Loan and Putting Up Your Assets for Collateral Work?

The lender may put a lien against the collateral when you take out a secured personal loan. This lien provides the lender the right to your property if you cannot pay back the loan. However, if you’re still paying off your loan, note that you can still use your assets while you’re at it. When you can pay off your loan, the lender will remove the lien on your property.

When you default on your loan, you’re not only going to use some valuable collateral, but you’ll also obtain bad credit that could sever your chances of getting loans for the next few years. With that said, it’s worth making an effort to pay off your small personal loans so you can keep a satisfactory credit score, as well as your collateral.

What are the Different Collaterals I Can Use?

  • Cash in savings and a certificate of deposit account
  • Car
  • Home
  • Bonds
  • Stocks
  • Jewelry
  • Insurance Policy
  • Antiques
  • Collectibles
  • Future Paychecks, and more

What are the Pros and Cons of Collateral on a Loan?


  • It makes it much easier to obtain a loan when putting up collateral, especially if you have a damaged credit history;
  • It reduces financial risk for the lender, allowing you to borrow more money with an unsecured loan;
  • You work with lower interest rates and longer repayment periods;
  • It can help boost your credit;


  • Your collateral can be obtained by the lender when you default on a loan;
  • Your lender may tap the debt collector to chase overdue money from you;
  • Some lenders may charge high-interest rates if you have bad credit;

The Bottom Line: Borrow Money From a Lender You Can Trust

Even if you’re taking a small personal loan, it’s important to work with a trustworthy lender, especially if you’re putting up some of your collateral to secure a loan. However, the work is still up to you, so make sure that you pay your loan in full and on time to ensure your collateral remains yours.

How Can We Help You?

If you’re thinking of getting ,small personal loans, Mid-Town Loans is here to help.

Our company understands the time-sensitive need to obtain funds when falling short or in a rut. If you’re looking to build or rebuild your credit, consolidate bills, or release yourself from a financial bind, we’re here to help.

Reach out to us and learn more about how we can help you today!