Personal loans are mostly unsecured debt, so you don’t need collateral for a personal loan in most cases. However, some lenders might ask for it.
Personal loans can be a great alternative to credit card loans or other high-interest debt. Because personal loans are mostly low-interest loans with short processing times. However, do you need collateral for a personal loan?
The answer is a bit more complicated than a simple yes or no. That’s why in this post I am going to simply explain whether you need collateral for a personal loan. If so then what can be used as collateral and many more related queries. So, stick here.
Do You Need Collateral For A Personal Loan?
No, you don’t need any collateral for personal loans. Because personal loans are given based on your credit score, financial history, income, etc.
Personal loans are low-interest long-term loans which makes them better than payday loans or credit card debt. A personal loan is a type of unsecured debt which means it is not backed by any of your underlying assets or collateral.
These loans are solely based on your financial history and income. There might be other related factors depending on the lender. As a result, personal loans do not require any collateral in most cases.
However, some lenders offer secured personal loans. You will require an underlying asset or collateral for getting these secured loans.
As a result, if you are looking for a collateral-free personal loan then apply for an unsecured debt. But if you plan to get a secured personal loan then what can be used as collateral for a personal loan?
What Can Be Used As Collateral For A Personal Loan?
Anything that holds high monetary value can be used as collateral for a secured personal loan. It can be both a physical asset and an intangible asset. Here is collateral for a loan examples
- Real estate
- Savings Account
- Investment Account
- Art or antique
These are just some examples of what can be used as collateral for personal loans. However, you can use any other asset as collateral if your lender agrees.
Can I Get A Loan Using My House As Collateral With Bad Credit?
Yes, you can get a loan using your house as collateral with bad credit.
If you have bad credit then getting a loan can be tough. However, you can get a secured loan in that situation. But your debt-to-income ratio must be low and you have to have at least 15% equity in your house. Then it won’t be hard if you put your house as collateral.
Moreover, there are special loans called home equity loans. These loans are specially designed to provide loans in return for your home equity as collateral. The interest rates are lower than personal loans.
Can I Use My House As Collateral For A Personal Loan?
Yes, you can use your house as collateral for a personal loan.
Though most personal loans do not require collateral. However, some lenders might ask for it or if you are borrowing a large sum then you might require collateral. In that case, your home equity can be your collateral. Because your house holds a high monetary value.
Moreover, there are some advantages of putting collateral for personal loans. They are
- Low-interest rates,
- High loan amount
- Easy to get
- These loans can be used to repair your credit score.
Now, let’s look at the dangers of putting up collateral for personal loans.
What Is The Danger Of Putting Up Collateral For A Loan?
In the worst case, if you are unable to pay the loan balance then your lender can seize the collateral.
The most dangerous thing about secured loans is that you can lose the underlying asset or collateral. Collaterals are mostly high-value assets like your house, investment account, etc. That’s why lenders give you a loan with good facilities and a high loan amount. As they are assured that if you are unable to pay then they can get the asset in return.
Moreover, when you put up collateral the paperwork becomes more complicated. As a result, it becomes hard to understand the loan policy and there can be strings attached. So, they can put you in danger even if you pay the full loan amount.
Usually, personal loans do not require collateral. However, if you have a bad credit score or need a large loan amount then the lender might ask for collateral.
If you are taking a secured personal loan then please check the loan policy carefully, and take expert help if needed.