What can I use as collateral for a secured loan?
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UPDATED: Oct 4, 2012
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There are several types of items and assets that a borrower can use as collateral for a secured loan.
In the secured loan lending process a borrower tries to obtain a loan by offering up collateral. This can be any asset of value that lenders will accept as security for a personal loan. In the event that a borrower is unable to make monthly payments, the asset can be seized by the lender. Any seized item is likely to be sold by the lender in order to recover the cost of the lost personal loan, which, in essence, is lost profit and money owed to the lender.
The most common type of asset that borrowers offer to a lender is their home. In the event that the borrower is unable to repay their loan, the lender can foreclose upon the collateralized house. As a result, borrowers should be very cautious when using their home for a secured loan. Besides, other types of assets can usually be more easily parted with.
Automobiles are excellent collateral options. While a car certainly won’t secure as much money as a home would, it is easier to part with. Furthermore, boats—which can sometimes be more valuable than cars—can also be used.
Cash accounts are useful for borrowers looking to offer up collateral that is not a physical asset. While lenders love being able to sign actual cash as collateral, borrowers should understand that their money and savings can be seized if they default on secured loan payments, leaving them potentially penniless.
Borrowers who are speculators in the stock market or who have other investments may be able to use their financial portfolio as collateral. Not all lenders will agree to this though since certain investments, such as stocks, can change in value quite rapidly.
Prospective borrowers who are seeking a loan to start a business or help expand one can use their inventory or equipment. Inventory, being physical assets of value, can be an excellent asset that some lenders will agree to sign on as collateral. Business owners should remember though that inventory must be available for repossession in the event of default.
In the event that they default, borrowers shouldn’t simply shrug off the loss of their collateral. Defaulting on a secured loan is a very serious mistake that can damage a borrower’s credit for years to come, preventing them from borrowing money again or forcing them to only borrow money at high interest rates.