Can I sell collateral backing a secured personal loan?
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UPDATED: Sep 10, 2012
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The collateral that is backing a secured personal loan should never be sold.
Collateral is used to secure a loan for the lender. In a secured personal loan, the collateral involved is an agreed-upon asset of value. By having access to an asset of value, a lender is able to make back some or all of any loaned money that is not repaid. Collateral is usually seen in the form of vehicles and homes. Sometimes it can even be checking or savings accounts.
When offered collateral is a vehicle or home, borrowers may face a situation where they would like to sell whatever’s being used as collateral.
Unfortunately, this would carry powerful repercussions.
A lender expects a borrower’s collateral to be available for repossession in the event that the borrower defaults. In effect, selling any collateral that’s backing money robs a lender of their security and violates the lending agreement. Additionally, a secured personal loan lender actually has a lien on the title of any offered collateral, effectively preventing its legal sale.
Depending on their state, borrowers who either unknowingly or deliberately sell the collateral backing a loan can quickly find themselves vulnerable to civil and criminal charges.
By selling the collateral in a secured personal loan agreement a borrower may be charged with fraud.
Borrowers are able to sell their collateral provided they pay the lender the full amount of the loan first. Once a lender is satisfied through repayment, a borrower’s collateral is no longer at risk of repossession and it’s no longer of importance to the lender.
Due to financial distress, borrowers may be inclined to sell valuable assets they have, including assets that have been signed as collateral for a secured personal loan. Borrowers in this situation should speak with their lender about payment options and deferments. Some lenders may be sympathetic to those who show an earnest desire to make partial payments until their financial situations improve. Borrowers can try to avoid placing themselves in desperate situations by speaking to various lenders, considering different offers, and comparing multiple quotes for secured personal loans before signing a contract.