There is a mountain of reasons people get personal loans. Some may look into personal loans to help pay hefty medical bills, cover home repairs or renovations, or even consolidate debt.
However, these loans are often unsecured, which means having collateral isn't much of a requirement. Not to mention, some lenders may need to ask borrowers that their personal loans should be supported with collateral that holds monetary value.
Things that fall under collateral for unsecured loans are the cash in your savings account, your vehicle, and your home. But even with that, things can get pretty complicated when determining which of your assets can fall under collateral for your personal loans.
If you're confused about collaterals and how they affect your personal loans, keep reading. In this article, we'll take a deep dive into what collateral—what it is, the different types, and their pros and cons. Let's take a look!
What is a Collateral?
To simply put it, collateral is an asset, like your home or car, that you would offer up to the lender to qualify for a particular loan. When you present your collateral to a lender, it makes them more comfortable in extending financial assistance since it protects their financial stake should you fail to make payments.
When you default on a loan, your lender can seize your collateral to compensate for their financial losses. For example, you may have to put your car up as collateral for a personal loan. If you're unable to pay the amount, your lender can simply take ownership of your car.
For personal loans that are backed up by collateral, secured loans offer lower annual percentage rates and shorter payment periods. If you still can't keep up with payment on secured loans, then you could easily lose your collateral.
On the other hand, unsecured loans don't require collateral, and lenders who offer unsecured loans would often seek out creditworthiness to determine if you'll be able to pay off your loan. These would include your credit score, credit reports, income, and other factors.
Different Collateral You Can Use for Your Loans
Here's a list of collateral that can be used for secured personal loans:
Cash in your savings account;
Cash in a certificate of deposit account;
Car or Boat
Collectibles, Fine Art, or Antiques,
Precious Metals, and even;
Why Should You Put Up Collateral When Getting a Loan?
It's much easier to obtain a loan, especially if you have a poor credit history or no credit history at all;
You can borrow more money since your collateral reduces your financial risk for a lender;
Your collateral can lower your interest rates and provide you with longer paying periods;
Secured loans help boost your credit score;
Why Shouldn't I Put Up Collateral When Getting a Loan?
If you default, your lender can take your collateral;
Besides getting your collateral, the lender can tap the debt collector to seek the money from you;
If you used your cash deposit or savings account, a minimum balance may be required;
You may get higher interest rates, especially if you have a bad credit score;
The lender can be strict about how you use the money you borrow;
The Bottom Line: Work With Experts to Secure a Personal Loan that Works For You
Thankfully, you can get personal loans no matter your situation, but the type you get should solely depend on your financial abilities. For this reason, if you want to get a personal loan, make sure that you take every consideration into account — from your assets to your credit score and see if it's worth putting up your collateral for a loan.
How Can We Help You?
If you're looking for personal loans for bad credit in Murfreesboro, Hometown Finance is here to help.
Our team creates strong relationships with our clients as we understand their current financial situation and past credit. With our help, we help them secure installment loans to help assist them with their financial needs.
Inquire about our services today!