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What Can Be Used As Collateral For A Personal Loan?
A secured personal loan requires an item of value (such as a car or house) or a savings account be pledged as collateral to “secure” the account.
Secured personal loans (also known as personal loans with collateral or secured collateral loans) have unique advantages over unsecured loans (which don’t require the borrower to pledge collateral in order to qualify).
However there are some important caveats to consider when obtaining a secured personal loan with collateral, as they can end up causing problems if you aren’t able to repay your loan.
At Credit Union of Southern California (CU SoCal), we make getting a secured personal loan easier, and we want your loan to be successfully repaid too. We offer a series of personal loans to ensure you’ll be able to access the money you need in a way that will help build your credit.
Even if your credit history isn’t perfect, don’t worry, because unlike a traditional bank, we don’t think that your credit score tells the whole the story. Come in and talk to us and let’s see what we can do.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our personal loans and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
Get Started on Your Personal Loan!
Read-on to learn more about what can be used as collateral for a secured personal loan.
What Are Personal Loans and How Do They Work?
A personal loan is a loan granted to an individual by a lender, such as a credit union or bank. Personal loans can be used for a variety of purposes, but are typically used for large personal expenses such home renovation, a medical bill, a wedding, tax lien, or college tuition.
To get a personal loan, the individual will complete a lender’s application. To start the application process the lender may ask to look at the borrower’s proof of identity, credit score, proof of employment, proof of income, etc.
Learn more by reading, What Are Personal Loans?
Secured vs. Unsecured Personal Loans
There are two categories of personal loans, unsecured and secured. The primary difference between unsecured and secured personal loans is the presence of collateral.
Collateral is an asset or something of value. When applying for an unsecured loan, the lender will qualify the borrower based on that individual’s creditworthiness (not collateral).
A secured collateral loan requires that the borrower use their assets (such as a car, house or savings account) as collateral to “secure” the loan. The collateral is a promise to the lender that if the borrower cannot repay the loan, the lender can take possession of that asset.
Learn more by reading, Are Personal Loans Secured Or Unsecured?
Pros and Cons Of Secured Personal Loans
Personal loan with collateral have advantages, but they also come with more risk than unsecured personal loans.
Pros
Easier Approval: The presence of collateral makes secured loans easier to get approved for, because there’s less risk for the lender.
Lower Interest Rates: Again, due to the presence of collateral, lenders tend to provide a lower interest rate (APR) on a secured personal loan.
Lots Of Lenders: Credit unions, banks and online lenders are all sources of secured loans. Be sure to compare interest rates and repayment terms before signing for a loan.
Larger Loan Amounts: According to Debt.org, “secured loan amounts can be much larger with lower interest rates. If the lender has collateral available in a default, the risk of lending is diminished.”
Cons
You Could Lose Your Collateral: Failure to make on-time monthly payments or defaulting on a secured personal loan could result in loss of the borrower’s collateral.
Limited Maximum Loan Amount: If cash is used as collateral, then the lender may only lend based on the dollar amount of the collateral. Items of value (such as a car or house) that are used as collateral will result in a higher loan amount being offered by the lender, as their risk is reduced.
Fewer Options Compared To Unsecured Loans: Unsecured personal loans and lines of credit are more abundant in the loan marketplace, so borrowers may have an easier time finding the loan that works best for their needs.
What Can Be Used As Collateral For A Personal Loan?
As mentioned earlier, a secured personal loan requires that the borrower put-up an item of value or a monetary account. If the borrower fails to repay the loan, the lender will keep the item to make up for their lost revenue. Examples of what can be used as collateral for a personal loan include the following:
- Your Vehicle
- Your Home
- Your Savings
- Your Investment Accounts
- Your Future Paychecks
- Art
- Jewelry
Alternatives To Secured Personal Loans
If you need money to pay for large expenses but prefer not to take out a secured personal loan, here are some alternatives to consider.
Credit Card: Most merchants will allow an individual to make a payment with a credit card. However, some personal expenses will require cash only, such as the purchase of a used car from an individual, or other purchases made from non-retail/merchant entities. If only cash will do, read-on for other loan suggestions.
Peer-To-Peer Loans: According to the credit bureau Experian, Peer-to-peer (P2P) loans are available through online platforms that pair potential borrowers with investors willing to issue loans. The main appeal for P2P borrowers is that they'll generally find lower interest rates than are typically available through traditional lenders like banks or credit unions. Every peer-to-peer lending platform has its own criteria for deciding who qualifies for a loan, and their requirements can be stricter or more diverse than those of traditional lenders. Minimum credit score requirements may be higher, for instance.
Cash Advance: All credit cards offer a “cash advance” option that allows the card holder to borrow money. Cash advances typically come with a high interest rate on the amount borrowed, higher than you’ll pay on your monthly card balance. To get your cash advance, contact the card issuer or log into your online account to see if the cash can be deposited into your bank account. Some cards let you use an ATM to get your cash, depending on the amount. Check your credit card statement to see your cash advance limit and the interest rate (APR) you will be charged.
401(k) Loan: If you have a 401(k) plan through your employer, you may be able to take a distribution (withdraw money) from your account. However, distributions are taxable and other tax rules must be followed. According to the IRS, some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from your employer’s 401(k) plan is not taxable if it meets these IRS criteria for Loans from 401(k) plans. A 401(k) plan may allow you to receive a hardship distribution because of an immediate and heavy financial need. Be sure to check with a tax professional and refer to your plan’s details before taking out a loan from your 401(k).
Is A Secured Personal Loan Right For Me?
As you can see, there are many personal loan options available, whether you choose a collateral loan or another source to get the money you need.
How do you know if a personal loan is right for you? First, decide how much money you really need to borrow, how quickly you need the funds, and how easily you can pay it back. Check with several lenders in your area to see what types of personal loans they offer, then compare interest rates and repayment terms.
Remember, a personal loan with collateral or a secured personal loan requires that you put up collateral (an item of value, such as a car, house, or savings account) to secure the loan. If you have unstable income and employment, then a secured loan may be too risky. If you cannot make the payments you could lose your collateral.
CU SoCal Personal Loans
CU SoCal is helping Southern Californians get the funds they need to pay for life’s necessities. Our personal loan features include:
- Financing from $500 to $30,000
- Rates as low as2.50% + Share Certificate Rate
- Terms up to 120 months for the lowest possible monthly payment
- Line of credit option for access to funds when you need it
- No application fee
- No prepayment penalty
- No funding fee
Get the details on CU SoCal Personal Loans.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including personal loans, car loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with a personal loan representative.
Get Started on Your Personal Loan!
