How to Use Property as Collateral for Loans

When you use your property as collateral for a loan, the property secures your debt for the bank. If you fail to repay the secured personal loan according to the established terms, the bank has the right to seize the collateral and sell it to cover the cost of the loan.

Instructions

1. Consider the condition of the collateral. Some banks won't accept your rusty Ford pickup truck as collateral, even if you can get $200 for it. The condition helps determine the value of the property. Over the life of the secured personal loan, the value continues to depreciate.

2. Appraise your personal property, which can include your home, car, jewelry or assets like stocks and bonds. The bank looks at the resale value, so expect your value to be lower when you use it for collateral than it would be if you personally sold it.

3. Provide the bank with lender information or the title. If you own the property and have the title, you can use the title to secure the debt. For equity in your personal property, the bank may need to get permission from the company holding the title and will only consider the value over the balance due.

4. Agree to repay any difference left after the collateral. If you default on the loan, the bank will sell your assets used for collateral to repay the loan. You will still have to pay any balance remaining after the liquidation.

Tips & Warnings

• The bank may require an independent appraisal to ensure the value of your property.