Collateral Loans: How Secured Loans Work and What Counts as Collateral
| Collateral of a loan | An asset pledged to secure repayment |
|---|---|
| Common collateral | Car title, savings, CD, jewelry, electronics |
| Main benefit | Easier approval; often a lower rate |
| Main risk | You can lose the asset if you default |
| Unsecured option | Personal loans with no collateral |
| Our network | Secured and unsecured offers, $100–$5,000 |
What is collateral on a loan?
The collateral of a loan is an asset you pledge to the lender as a backup for repayment. You keep paying as agreed and you keep your property. If you stop paying, the lender has the right to take the collateral, under your contract and state law, to recover what you owe.
Collateral changes the math for the lender. Instead of relying only on your credit history, the lender can count on the value of the asset. That's why a collateral loan can open doors when your credit score is low or your history is thin.
What can you use as collateral?
| Collateral | Loan type | Do you keep using it? | Learn more |
|---|---|---|---|
| Car, truck or motorcycle title | Title loan or auto equity loan | Yes, you keep driving | Title loans |
| Savings account | Share- or savings-secured loan (banks and credit unions) | Funds are frozen until repaid | Credit builder loans |
| Certificate of deposit (CD) | CD-secured loan | The CD stays put while it earns | Ask your bank |
| Jewelry, electronics, tools | Pawn loan | No, the shop holds the item | Pawn shop loans |
| Home equity | Home equity loan or line | Yes | Not offered through our form |
The lender usually lends a portion of the collateral's value, not the full amount, so there's a cushion if the asset has to be sold.
Secured vs. unsecured: how the cost compares
Secured loans often carry lower rates than unsecured loans for the same borrower, because the lender's risk is lower. Here's how that plays out on $3,000 over 24 months using assumed rates (not quotes):
| Loan | Assumed APR | Monthly payment | Total repaid |
|---|---|---|---|
| Savings-secured loan | 10% | about $138.43 | about $3,322 |
| Other secured loan | 15% | about $145.46 | about $3,491 |
| Unsecured personal loan | 30% | about $167.74 | about $4,026 |
Title and pawn loans are priced under state law and work differently, often as monthly fees on shorter terms. Your lender shows the exact APR and total before you sign. Compare more in secured vs. unsecured loans.
See if you qualify — it takes about 3 minutes. Start your free request. There is no obligation to accept an offer.
Collateral loans for bad credit
If your credit is the hurdle, collateral can do some of the heavy lifting:
- Title loans focus on your vehicle's value and your income. You keep driving. Availability depends on your state; see title loan laws by state.
- Savings-secured loans are often approved with little credit history because your own money backs them. They can help build credit, but you need the savings first.
- Pawn loans usually involve no credit check at all, since the shop holds your item.
Don't have collateral, or don't want to pledge it? Many lenders in our network offer unsecured installment loans based on income. See personal loans for bad credit.
Collateral loan examples
- You own a paid-off pickup and need $1,200 for a repair. If your credit score is low but the truck has solid value and title loans are allowed in your state, a title loan can fit. You keep driving while you repay.
- You have $1,500 in savings you don't want to drain, and you want to build credit. A savings-secured loan from a bank or credit union lets you borrow against it, often at a lower rate, while the savings stay in your account.
- You need $300 for two weeks and have a laptop you rarely use. A pawn loan gets you cash based on the item; you pick it up when you repay.
The right choice depends on what you own, what you need and your state's rules.
Does a collateral loan build credit?
It can. Savings-secured and CD-secured loans from banks and credit unions are often reported to the credit bureaus, which is why they're popular for building credit. Many installment lenders report too. Pawn loans generally aren't reported, and title loan reporting varies by lender. If building credit is a goal, ask the lender whether it reports and to which bureaus before you sign.
Risks to weigh before you pledge collateral
- You can lose the asset. If you default on a title loan, the lender can repossess the vehicle under state rules. See title loan repossession.
- Your access is limited. Savings and CDs pledged as collateral are usually frozen until the loan is paid.
- Valuation matters. The amount you can borrow depends on the lender's appraisal, which may be below what you think the item is worth.
- Read the default terms. Know the grace period, late fees and what happens to any surplus if the asset is sold.
How to get a collateral loan
- Decide what you'll pledge and gather proof of ownership, such as a vehicle title or account statement.
- Check your state's rules for the loan type, especially title loans.
- Compare offers. Look at the amount, APR, fees, term and what happens on default.
- Have ID and proof of income ready. Most secured lenders still check that you can repay.
- Sign only when the terms are clear.
For vehicle-backed loans specifically, see title loan requirements.
Secured or unsecured: get offers with one form
Zebra Finance is a free loan-matching service, not a lender. One short form, about 3 minutes, reaches lenders in our network that serve your state. Depending on where you live and what you need, that may include title loans backed by your vehicle or unsecured personal installment loans. Many lenders decide within minutes, and approved funds can arrive as soon as the next business day. You'll see full terms before you accept.
See if you qualify — it takes about 3 minutes. Start your free request. There is no obligation to accept an offer.
Frequently asked questions
What is a collateral loan?
A collateral loan is a secured loan backed by an asset you own, like a car, savings account, CD or valuables. If you repay as agreed, you keep the asset. If you default, the lender can take it to recover the debt. Collateral can make approval easier and lower the rate.
What can be used as collateral for a loan?
Common collateral includes vehicle titles, savings accounts, certificates of deposit, jewelry and electronics for pawn loans, and home equity. The lender usually lends only a portion of the asset's value. What a lender accepts depends on the loan type and the lender.
Can I get a collateral loan with bad credit?
Often, yes. Because the collateral reduces the lender's risk, secured loans like title loans, savings-secured loans and pawn loans can be easier to get with bad credit. Most lenders still check your income and ability to repay, except pawn shops, which rely on the item.
Are collateral loans cheaper than unsecured loans?
Secured loans from banks and credit unions often carry lower rates than unsecured loans for the same borrower. Title and pawn loans are priced under state law and work differently. Compare the APR and total to repay on each offer to know for sure.
What happens to collateral if I can't pay?
The lender can take the collateral under your contract and state law. For a title loan, that can mean repossession of the vehicle; for a savings-secured loan, the lender uses the pledged funds. Contact your lender early if you're having trouble; many have options.
Sources
- CFPB — What is a personal installment loan?
- FTC — Vehicle repossession
- FTC — What To Know About Payday and Car Title Loans