What Are Collateral Loans?

Collateral loans are also known as secured loans; this means that the loan is guaranteed by a piece of property—typically real estate holdings, vehicles or boats. In the event the borrower defaults on the loan, the lender is entitled to the property used to secure the loan. The types of loans with collateral possibility may include title loans, mortgages and other types of moderate-to-high-risk lending arrangements. Of these, vehicle collateral loans are the most common—both in initial financing and for owners who have paid off their vehicles—as a quick financing method for emergency cash.

Auto collateral loans are also known as car title loans and are used to meet short-term financial needs. Borrowers must meet minimum requirements in order to qualify for these loans. Bad credit or no credit is generally not a factor since credit checks are not usually performed in evaluating the application; however, the employment and residence history of the borrower is often considered. Additionally, the vehicle must be paid off, and the pink slip or vehicle title must be in the borrower’s name. The value of the vehicle is also considered, for it must exceed a certain fixed amount—usually at least $4,000—in order to qualify for these loans.

Borrowers who qualify for car collateral loans can borrow a significant portion of the value of their vehicle while still retaining possession and use of the car during the loan period, which is usually between one and three years. This allows the borrower to spread out a major one-time expense over a period of months or years; monthly payments are designed to pay off the loan within the agreed-upon period.

Collateral loans provide emergency cash for a variety of needs; the borrower is not restricted in how he or she uses the funds. This offers a great deal of flexibility for borrowers who find themselves in need of emergency cash, and it can provide near-instant access to funds for medical expenses, repair bills and other unexpected expenses, without creating undue hardship for the borrower.