What is a Collateral Loan?

Tricia Christensen
Tricia Christensen

A collateral loan is also called a secured loan. It is a loan obtained from a banking or other financial institution, where in exchange, the creditor may sell that which is offered for collateral if the loan is unpaid. A collateral loan is often offered at a lower interest rate than an unsecured loan, because there is a guarantee of repayment should the borrower default on the loan.

Assets like houses, automobiles, and stocks may be put up as collateral to secure a loan.
Assets like houses, automobiles, and stocks may be put up as collateral to secure a loan.

A collateral loan may use different things to secure the loan. Often people use stocks or bonds to establish this type of loan. They can use their ownership in property, where a portion of perhaps a home, or a piece of land, is set up as collateral. If the borrower defaults, he must sell the property to pay back the loan, and the lender has rights to sell the property also, even if only a portion of the full value belongs to them. In these cases, a lender would sell the home, and give the previous owner the monies not offered on collateral.

Farmers might use the expected return on a harvested crop as collateral to secure a loan.
Farmers might use the expected return on a harvested crop as collateral to secure a loan.

A collateral loan may also be based on expected collateral, like the expected return on a harvested crop, or on an investment. Occasionally, one can use property like high-valued jewelry as collateral, or other high-valued goods. This is rare, as most such loans are based on paper assets, or on real estate.

If the collateral given decreases in value and the borrower defaults, he or she will still be responsible to repay the amount at which the collateral was previously assessed. For example, a person borrows $100,000 on a home of the same value. If the home decreases in value, say to $75,000, the borrower must still pay back the full amount, as dictated by the terms of the collateral loan. If a borrower has defaulted on the loan, his or her home will be sold. However, the borrower will still owe the lender $25,000. This may require the borrower to sell more possessions or enter bankruptcy.

In most cases, people will not borrow to the full value of a possession offered as collateral to avoid the circumstances described above. Instead, the collateral loan is usually only a portion of the full value of a possession, or of paper trading like stocks and bonds. People with a number of high value items, properties, or stocks and bonds can of course get larger collateral loans. However, with any loan, it is best to borrow only what one needs, since interest rates will still mean a higher payback than the actual money borrowed.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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Discussion Comments


I'm from the Philippines. I have the same problem as the article but I want to make it more clear.

My grandmother loaned our land, a total of 5 hectares. Now I want to fix this problem because the interest is growing, and my question is how can I sell our property? I only want to sell 2 hectares to maybe get enough to cover the expenses. What should I do?

Does anyone here know someone who can buy our land? Our land is a farm type but can be converted to resort/swimming pools. I would like to know more from you guys.


In 2011, I lost a salary of $90k to $50k. I've worked my way back up to $80k (if consistent hours are available). I have past due bills that I can't seem to get caught up on. I also have poor credit (592). I have a 2008 Lexus that I'm making car payments on. Is there a loan available to me using my car as collateral?


My name Abd from Malaysia. I have Federal Reserve (United States) Bonds. Can I use these bonds as collateral for a loan?


I have been down this road before. I live in dubai and I was in need of loan to refinance my business and a friend of mine directed me to contact a loan firm in UK with and I did as directed. Believe me, it was perfect. Give it a try, guys.


I just read through the entire article of yours and it was quite good. This is a great article. Thanks for sharing this information. I will visit your blog for some the latest posts.


I have an account with money with a company in Newyork, however the funds are in a fixed account. I wish to use this account as collateral for loan but I don't seem to get the right financial institution to process this loan as I live overseas. Is there anybody who knows how I can get help?


I received a loan and put my car up for collateral. The credit union also stated that I needed a co-signer. I did both, my payments have been up to date now I'm dealing with two separate issues. First, my co-signer then began to bounce checks and as of today the amount exceeds $10,000. The credit union since then has repossessed my car, stating I'm responsible for the default of his primary account. Can they do this?


A non-immediate family member has asked to borrow some money for an emergency and is using a plot of land as collateral. What kind of form can I use to make this legal?


i own a five bedroom home worth 125,000 looking to put it up for collateral for a $8000 loan. can anyone help me?


I have a title which is worth 134,000 which is the equity on the house. will a bank give me a collateral loan for this amount. There is no mortgage against the property.


My husband and I own a home worth approximately 450,000 (per a four year old estimate). We still owe the bank about 230,000 and it will be paid off in nine years. We own free and clear a business and building worth approximately 450, 000 and a condo down the shore worth about 300, 000 in today's climate.

We have an opportunity to buy the condo next to ours for $180,0000 (quick sale. The owner paid 360,000 four years ago).

We'd like to buy it and sit on it for three to five years. It will definitely go up in price as it is by the bay. Can we put up our condo or business property as collateral for the purchase, and if so, how much do the banks usually charge as interest?


i do own my home. it is valued at 60,000.00 I'm looking to get at loans using my house as collateral. can someone help me?


I own a home but have very bad credit. is there anyone who would give me a loan and us the home as collateral?


I have been trying to take out a loan with the world bank using myself as collateral and I am being told that someone already has a loan that uses me as collateral. how do I flush out the person or groups of persons who have committed fraud?


I have a offer of a lifetime here. There is a house valued at 135,000.00 and the owner is moving. The house is paid for.

The way times are right now, he cannot sell it. He told me,if I wanted it, he would sell it to me for 50,000.00.

I need to find a savings and loan bank that would loan me the 50,000.00 and have the house for collateral.


I have a home on one acre of land on a Lake. The home is located in Orlando, Fl surrounded by hotels and Sea World. I am opening a new business and need to borrow $100,000. The house was valued in 2009 at $750,000. The house owes $300,000. I am willing to put it up as collateral to get the loan. If there is anyone out there willing to help me, please let me know.


I'm trying to get a loan to buy a house for $70,000, if I'm pre-approved, but at 11 percent interest rate how do i get that interest lowered? i do have a home. It's only worth $30,000. What do i do -- sell it and put more money down or collateral loan it or rent it? i don't understand everything. please help. I'm a young single mother and need wise advice.


yes i need a loan to pay my debts. I own my home free and clear. is there any help out there for me and my family? I am drowning and begging for help.


i have a home that is paid for. It is worth 400,000. i want to use it as collateral for a loan of 50,000 but my credit is not good. what can i do?


Can I pledge retained earnings as collateral for a loan please?


I bought a home and paid cash for it in 2007. I am in need of a loan, but I have no homeowners insurance and bad credit. Is there anyone who can give me a loan and use my home as collateral?


I'm 18 years old and a freshman in college. i need a loan to help me out with college but the thing is i have no credit. I own my own car and i was wondering if i could still get a collateral loan if i put that down for the loan agreement?


I needed money for my car payment and for some Christmas gifts last month. I applied at Smart Term Loans and it worked out great for me. I have a lot of jewelry that I don't wear and don't need right now (but I didn't want to sell it forever).

I sent it to them via a self addressed FedEx envelope. The gave me a great price on what they could lend me- so now I just pay 8 percent interest until I am ready to buy it back. Much cheaper than a credit card (which I couldn't get anyway).


We need to borrow $15,000 but has bad credit. We are willing to use our home as collateral. We need the best posible way we will be able to get the loan. -ftb


I have my house as collateral as a co-signer on a business loan. Can I sell my house and what do I have to do to do that?


I own a home but have very bad credit. is there anyone who would give me a loan and us the home as collateral?


I have my truck as collateral on a loan and I want to sell it in the near future. What do I have to do to sell it?


I have a 2004 Ion that I am still paying on. I owe about $5000 on it. It blue books for about $7000. Can I use this for collateral for a $5000 loan or can I only borrow the difference?


I was discharged from Bankruptcy, Chapter 7, June 2008. I would like to take out a loan against my car title. Is this possible without paying high interest?


I have an 2001 kingcab 2500 long wheel base chevrolet red pick-up..just put $750.00 worth of new tires on it this past october, i would like to use this truck as collateral to borrow some money, the truck has been paid off for a while now and is in great condition.....although i want a loan where I can pay regular monthly payments until I get the money paid back..i don't want any of this 190 day things or anything like that.....can you help me out and point me in the right direction?




I don't have the best of credit at the present time but I have steady income of $1200 a month I own a 2 family home that is paid for with no mortgage payments, and I own a 1995 Mercury Villager that is also paid for is there any one company willing to loan small loans for such assets; $800-$1500. Looking for advice!

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