Collateral Loan

When you need extra money to cover an expense like a car repair or home improvement project, securing a loan with collateral can be a good option.

Let’s take a closer look at collateral loans and how you may benefit from one.

What is collateral?

Collateral is an item of value that you can use to secure financing. It serves as an assurance that you'll repay the debt.

Common types of collateral include your car title, house deed, jewelry, or even a cash deposit. The type of collateral you need will depend on the type of loan and lender you choose.

Typically, the value of the collateral should be equal to or greater than the amount borrowed. Most approved loan amounts are somewhere between 50% to 80% of the collateral's appraised value.

What is a collateral loan?

Collateral loans are a type of secured financing. In this case, the loan is secured with a valuable asset you own and are willing to use as your promise to repay. After you exchange the collateral for the funds, your lender holds onto the asset until you've repaid the loan in full. At this point, you'll get your item back from the lender.

You may need to use collateral to apply for a loan if your credit history, credit score, or debt-to-income ratio disqualifies you from receiving an unsecured loan. This is because collateral reduces the lender’s risk. If you fail to pay the debt according to your repayment terms, the lender simply keeps your collateral to cover the amount you owe.

How does a collateral loan work?

When you want to apply for a loan that requires collateral, be sure to review the lender's requirements and application process. Most lenders will ask for specific details about the type of collateral you're offering.

For example, when applying for a title loan, you'll need to provide information about your vehicle's make, model, mileage, and overall condition. Online lenders will also need to appraise the asset in person.

Once the lender has calculated your item's market value, they decide whether to approve your application and, if so, offer you a loan amount based on the collateral's value.

Where can I get a collateral loan?

Loans requiring collateral are common enough that you'll find them offered by various lenders. Depending on the type of loan you're looking for, you can find a wide range of collateral loans at banks, credit unions, alternative lenders, and online lenders.

5 loans that use collateral

Common types of collateralized loans include:

Title loans

As we previously mentioned, title loans use your vehicle's title as collateral. With these loans, the lender offers you a loan amount that's typically worth 25% to 50% of your vehicle’s appraised value. You can continue driving your car while you repay the loan, but if you default, the lender can repossess your vehicle.


Home loans are backed by the house or property you’re financing. If you default on a mortgage, the lender can foreclose on your home and sell it to recoup their losses.

Home equity loans

Also known as second mortgages, home equity loans are tied to the equity in your home, which is the difference between its current value and the amount you still owe on your mortgage. Just like with a first mortgage, you risk losing your home if you default on a home equity loan.

Auto loans

Most people take out an auto loan when they purchase a new or preowned vehicle. These loans are similar to title loans in that the vehicle you're financing is the collateral, so the lender will hold your title until you've repaid the debt in full.

Secured credit cards

Opening a secured credit card can be a smart option for anyone working to rebuild or establish credit. Unlike traditional credit cards, a secured credit card requires you to put down a cash deposit as collateral. This deposit serves as security for the lender and reduces the risk associated with lending money to borrowers with limited or poor credit histories.

Pros and cons of collateral loans

Secured loans requiring collateral may come with lower interest rates and more favorable terms for borrowers with bad credit. However, remember that the lender can keep your valuable asset as payment if you fail to fulfill your end of the loan agreement.

As with any type of loan, secured personal loans have a mix of benefits and drawbacks:


  • Most collateral loan types don't require good credit because the lender can keep your asset as payment if you fail to make your loan payment.
  • Since there's less risk to the lender, collateral loan rates are typically lower than unsecured loans, especially if you have a poor credit rating.
  • Depending on the value of your collateral item, you can usually take out a larger loan amount than you can with an unsecured loan.


  • You must own the collateral item free and clear (without any existing loans or liens).
  • You risk losing a valuable personal asset if you default on your loan.

How can I get a personal loan with collateral?

The application process will vary by loan type and lender, but in general, you will need to:

  1. Fill out a loan application: You can visit a traditional bank, credit union, or alternative lender to complete your application in person. If you're going through an online lender, you can apply within minutes from the comfort of your home.
  2. Have your asset appraised: Once you submit your secured loan application, the lender or a third-party appraiser will assess your item's value. If you submitted an application online, you'll need to arrange an in-person appraisal.
  3. Review the loan offer: Once the lender appraises your personal asset, they will determine whether you're eligible for a loan. If you qualify, they will send you an offer with the amount of the loan, repayment terms, and loan conditions.
  4. Receive your funds: Depending on the lender, you may receive your loan funds as soon as the same day you apply. The lender will hold your collateral until you pay off the loan according to your loan agreement.

Get an unsecured personal loan from Advance America

If you don’t own or want to use a valuable item as collateral, Advance America has options. We offer Installment Loans, Payday Loans, and personal Lines of Credit to borrowers from all credit backgrounds — no collateral required! You can apply for any of our personal loans online or at your nearest Advance America location.

Prefer to get a personal loan without collateral? Apply online now!

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Since 1997, Advance America has helped millions of hardworking people with a variety of financial solutions including Payday Loans, Online Loans, Installment Loans, Title Loans and Personal Lines of Credit.
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