Sometimes we need cash fast. Emergency expenses, a sudden opportunity to get a great deal on something we want, or even needing to make a large purchase can all make us ask how we can get fast cash. If you have bad credit, or don't want to take out a traditional loan, collateral loans may come up as an option.
Unlike an unsecured loan, a collateral loan requires you to pledge a valuable asset, such as a car, jewelry, etc, in order to obtain funding from a lender.
If you have major expenses to cover like medical bills or an emergency car repair, leveraging your savings account, house or other personal assets can open the door to lower interest rates and more favorable loan terms. However, even though it’s possible to get collateral loans with bad credit, there are several drawbacks to consider.
So before you take out a secured loan with a credit union or online lender, learn more about the pros and cons of this personal finance option, how the loan application process works, and alternative routes to take if you don’t have the types of collateral needed.
Often called secured loans, collateral loans are guaranteed by something you own. Common types of collateral involved include:
If you fail to make the monthly payments, the financial institution that lent you the money has the right to claim the personal asset you pledged.
Borrow up to $500, no collateral needed.
There are several types of collateral loans you can choose from, including pawn shop loans. Depending on what personal assets you have, here are the loan options you could consider:
Don’t have the cleanest credit report? Because a secured loan is backed by a borrower’s personal assets, lenders have more financial protection. That means that even if your creditworthiness isn’t ideal, you may still prequalify based on the collateral.
Online lenders, banks and credit unions will offer better loan terms if you have a higher credit score. However, you may still meet their eligibility requirements with a low score if you have a valuable asset to pledge.
One of the main advantages of collateral loans is for bad credit situations, but they can be useful for those with a stronger score as well.
Why might you want to take the collateral loan route?
Some of the advantages can include:
Lower loan rates are certainly a plus, but there are potential downsides to taking out a personal loan with collateral.
Some cons to keep in mind:
If you believe a collateral loan is the best option based on your personal finances, you’ll need to go through with the application process. Be aware that it can be lengthy, so don’t expect to secure funds immediately.
In general, here’s what you’ll need to do get started:
Taking out a personal loan with collateral isn’t necessarily the best choice for everyone. After all, it comes with significant risk.
Failing to honor the repayment terms can ultimately cost you your home, your car, a family heirloom, or another valuable asset.
So, if you rather keep your options open, here are other ways to get funding that don’t involve collateral:
Collateral loans come with clear benefits and risks. On one hand, pledging your house or car can help you land a larger loan amount and lower interest rate.
However, you also run the risk of having to surrender a valuable asset if you don’t consistently make monthly payments.
Ultimately, if you practice fiscal responsibility and trust yourself to adhere to the loan terms, applying for a personal loan with collateral is a viable solution when money is an issue.
In the end, the choice is yours.