What Can Be Used as Personal Loan Collateral?


If you live in Canada, chances are you are among the 75% of Canadians dealing with high debt. If you’re looking to borrow money, you’ve probably already started researching lenders. Short-term loans, in particular, are a popular option for many consumers.

There are two popular types of consumer loans. Secured loans, and the other is unsecured. You may be asking what’s the difference. 

Secured loans require personal loan collateral, making it easier to get approved. They may tend to have higher interest rates than unsecured loans because they carry risks on the lenders’ end. Unsecured loans don’t require collateral and are harder to get, but they offer better options.

However, secured loans may not be the right choice for you. They can seriously affect your credit score and finances if you can’t repay what you borrow.

Let’s look at what is considered collateral for a personal loan.

What is Personal Loan Collateral?

To get a secured personal loan, you must provide collateral. Collateral can be any valuable asset. 

A secured personal loan is often the only way to borrow a large amount of money, especially if you have bad credit. Almost anything can be used as collateral as long as it’s allowed by the law. Lenders want assets that are easy to transfer ownership if the need arises.

Don’t be mistaken. The lender does not want your property. They want you to repay the money you borrowed. 

What you use as collateral usually depends on whether you use it for personal or business purposes. You should think twice about using items you can’t afford to lose if you cannot repay the loan. 

Collateral For a Personal Loan

Once you take out a secured personal loan, the next step is finding a lender. Before you take that next step, you want to look at your credit. With traditional lenders, your credit rating will determine your eligibility, interest rates, and how much you can borrow. 

Next, the amount you can borrow from a secured loan depends on how much the asset you’re using as collateral is worth. That’s why it’s a good idea to do an appraisal or check out estimated resale values before you start looking for lenders.

Last, choose a lender. Do your research to find the best lender and rates. Apply for your loan either online or in person. Most banks will require you to come into a local branch.

Choosing Your Collateral

Not every lender accepts every piece of personal property. For example, if you’re borrowing money against your home equity, the lender will take out a second mortgage on your home. This is your only option to secure the loan,

Car Title Loans

Some lenders offer loans for bad credit borrowers. They require the title of your vehicle to secure a personal loan. They may also require that you allow them to install GPS and car immobilizer devices. These devices assist in recovering the vehicle if you default on the loan.

Payday Loans

Payday loans have been a lifesaver for many borrowers needing personal loan collateral. In this example, a cash account, such as your bank account where your employer deposits your paycheck, is used to secure a personal loan. 

Your payments are often based on your pay date schedule or can include a convenient installment plan. The lender will use electronic funds transfer to collect the payments. The method is convenient and ensures your payments are made on time.  

Secured Personal Loan at Pawn Shops

If using a traditional bank is not an option due to your credit history, most pawn shops will allow you to secure a personal loan using valuables as collateral. Here are a few items you use:

  • Antiques
  • Appliances
  • Collectibles
  • Equipment and machinery
  • Golf clubs
  • Jewelry
  • Televisions

Anything of equal or greater value can be used as collateral for your loan.

What If You Default?

Missing payments on a secured loan, allows the lender to repossess the asset that secured the loan. In most places, the lender doesn’t have to notify you.

Repossession is the end of the story. If the collateral for a personal loan doesn’t bring in enough to pay off your loan, you’re on the hook for the difference.

For example, if you owed $5,000 on a personal loan when you stopped making payments. You used personal loan collateral to secure the loan, and the lender could only resell it for $3,500. You’re still on the hook for the remaining $1,500, plus interest. 

Depending on your loan type, you may face different types of penalties depending on what happens if you default on your loan. 

Personal Loans

Secured personal loans such as payday loans and loans from a pawn shop have different policies. The pawn shop will attempt t contact you before selling your property. However, they can sell your stuff without notice if you do not pay on time.

You’re not entitled to the difference if an item sells for more than your outstanding debt.

Regarding payday loans, you must remain in contact with the lender. Let them know of any banking changes or changes in your employment. They are willing to work with you if you’re proactive.  

Vehicle Loans

An auto loan, like a mortgage, is secured. You could lose your car if you default on your loan. The lender will try to sell your vehicle to pay off any outstanding debt.

The lender will try to come to an agreement before selling your vehicle. They may be willing to find another way to pay off your outstanding debt. This could include restructuring your loan terms to make it easier to pay off your balance.

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If you’re looking for a quick and easy way to get a loan that uses personal loan collateral, Kingcash is the way to go! We’re a financial service created to give Canadians an alternative to traditional financial institutions.

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