UPDATED: Sep 10, 2012

Advertiser Disclosure

Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Written By: Sara RouthierReviewed By: Joel OhmanUPDATED: Sep 10, 2012Fact Checked

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.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.

Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

Full Bio →

Written by Sara Routhier
Director of Outreach Sara Routhier

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP® Joel Ohman