Collateral for secured loans: Which type is best?
Are you looking to borrow more money at lower interest rates? A collateral loan may be your answer. From a home equity loan to investment loans, there are all sorts of different collateral loan types to suit your needs and financial situation.
What is a collateral loan?
Collateral loans, also called secured loans, are loans backed by something you already own—like your house, car, or investments—to lower the risk to lenders if you default.
Common collateral types
Anything of great value can be used as collateral for secured loans. But the most common forms are homes, cars, and other personal assets like savings accounts or personal investments.
Collateral loans typically have lower interest rates than unsecured loans because there’s built-in insurance for the lender. This also means that collateral loans are often easier to qualify for, even with lower credit scores.
Types of collateral used for business loans
For businesses, generally loans are collateralized against various business assets. These can include:
- Real estate
- Equipment (vehicles, tools, etc.)
- Accounts receivable
- Future sales
- Cash reserves
More often than not, most lenders will require a “blanket lien” to guarantee a loan. This means they can repossess as many assets as necessary from a business to recover the principal amount of a loan.
Types of collateral used for personal loans
Let’s dive into some examples of collateral for secured personal loans.
- Home equity loans:
When you use your home as collateral, you can borrow up to the total amount of equity you’ve paid into your home. This type of loan, however, is considered high-risk because if you default on the loan, the lender can sell your home.
- Vehicle equity loan:
A vehicle equity loan allows you to use the equity in your car, RV or motorcycle as collateral for a loan. The loan amount is based upon the vehicle value and your ability to repay. Generally you should avoid these loans as they are often offered by less reputable lenders.
- Portfolio collateral loans:
Banks offer their clients the opportunity to take out collateral loans secured by their investments—sometimes even up to the entire value of the existing portfolio. You can also use other tools like CDs or a savings account as collateral for secured loans at many banks.
Think it through when choosing what you put up as collateral. If you default, the collateral is gone! This is why if you have any uncertainty about repaying, consider unsecured loan options.
Digital assets, the perfect collateral for secured loans?
There’s a new type of collateral growing in popularity: Digital assets.
Digital assets are any sort of data you hold that can be given monetary value. Such as, online investment portfolios, software, social media accounts and more recently — cryptocurrency.
Cryptocurrency is liquid, borderless, and has an enormous market of over $200 billion. It’s also easy to transfer, store, and liquidate. Crypto’s flexibility makes it perfect for securing loans. However, it’s been slow to catch on with traditional lenders because of its lack of clear regulation.
While traditional lenders are still hesitant with using cryptocurrency, this digital asset has made a major impact with online P2P lending platforms.
The majority of P2P lending sites have traditionally had no real way to collect fees on defaulted loans. Which is why most of them have chosen to offer unsecured loans — contributing to their questionable reputation.
But this may soon change for good.
MyConstant offers 6% APR on collateral loans secured by 70+ different cryptos.
Modern lending platforms like MyConstant make it easier and less risky to stake your assets as collateral for low-interest loans.
At MyConstant, we offer loans starting at just 6% APR. You can also combine over 70 different types of cryptocurrency as collateral. And for your peace of mind, We securely escrow all collateral in smart contracts, third party wallets, or private servers and send it back to you immediately upon repayment.
Don’t worry about trading fees, exchanges, or any other sneaky costs—just a 2.5% matching fee for borrowers. Check out our blog and learn more about MyConstant’s crypto-backed borrowing options and get a collateralized loan at a great rate today.
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