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Loans with Collateral
8 Aug 2018

How to Get Personal Loans with Collateral

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What if you thought you couldn’t qualify for a loan, but you had an easy answer all around you?

For many people who need to get a loan and can’t otherwise qualify, loans with collateral are a great answer. Unfortunately, many people don’t know exactly how collateral loans work.

We’ve got you covered, though. Keep reading to discover our comprehensive guide to getting personal loans with collateral!

What Are Collateral Loans?

This guide is dedicating to helping you obtain collateral loans. First, though, it’s important to understand exactly what collateral loans are.

As the name implies, a collateral loan is one in which you have to put something of value up in order to obtain the money. The two most common kinds of collateral loans are home loans and automobile loans.

In both of those examples, someone who misses payments may be subject to losing the valuable item they put up as collateral. However, home loans and automobile loans are not the only kinds of collateral loans.

It’s possible to obtain personal loans by using collateral. To do so, you must understand how the collateral process works.

How Do Collateral Loans Work?

Once you have the money, a collateral loan works the same as any other loan. You will receive a certain amount of money and then pay it off in regular installments (making this an example of an installment loan).

The difference, though, is that you must offer an item of value, and that item can be repossessed by the lender if you fail to make your payments on time.

A major part of the collateral loan process involves the valuation of your collateral. It is typically up to the lender to determine how valuable your collateral is.

One thing that often surprises borrowers is that they cannot get the full value of their collateral as a loan. If you use your home as collateral to start a business, you may only be able to get 80% of its value. And if you put up an automobile or boat as collateral, it’s not uncommon to only get 50% of its value.

These aren’t the only objects that can be used as collateral, though. And understanding the different types of collateral can help you to understand if you should get a collateral loan or not.

What Are Different Types of Collateral?

We have already discussed three of the most common forms of collateral: houses, automobiles, and boats. Keep in mind that with houses, you can use your equity as collateral, meaning it doesn’t have to be fully paid off to be used as collateral.

Other types of vehicles can be used as collateral, including trucks and motorcycles. You can also use valuable assets on your land (such as oil reserves).

Finally, you can put different kinds of investments up as collateral. This ranges from investments in the stock market to any federal bonds that you may own.

Borrowing Money Without Collateral Loans?

There is an inevitable element of risk when you apply for collateral loans. If you put up your home to start a business venture and the business fails, for instance, then you have lost one of your most significant assets.

However, many people turn to collateral loans because they have poor credit. That leaves a big question: what are the secrets to borrowing money without collateral loans?

We’ve got good news and bad news, as there’s only one secret: you must have a good credit score.

To lenders, a higher credit score indicates that you are likelier to pay back any money that you borrow. And they are willing to let you borrow money based solely on your signature rather than any special collateral.

This means that borrowing money without collateral loans involves understanding and improving your credit score.

Your Credit Score and Loans With Collateral

Your credit score is a raw number that indicates how creditworthy you are. The score can range from 300 to 850.

There are three different credit bureaus that each create their own calculation for your credit score. They are Experian, TransUnion, and Equifax.

Your credit score is determined by five different factors. This includes your payment history, amount of debt, age of credit, mix of credit, and credit applications.

It’s possible for you to calculate and track your credit score using any free online credit monitoring tools. This allows you to track changes and begin working on a plan to rebuild your credit and borrow money without collateral.

How to Rebuild Credit

Once you know your credit score, it’s possible to begin rebuilding your credit. And doing so requires understanding some of the secrets about how your credit score works.

Payment history is the biggest factor. Try talking to your previous lenders and, if necessary, working out a repayment plan. They may be willing to remove some of the negative factors from your report, boosting your score.

Debt usage is another big factor. It’s not a problem to have things like credit card debt, but if you are using more than 30% of the available credit, it can negatively affect your score.

To get your debt usage down, pick one account and pay extra on it each month. Once it is paid off, you can then apply its old payment to another card.

You can also use balance transfer cards. These let you transfer balances from cards with high interest to cards with low interest. As a bonus, such cards usually offer a period of no interest, which is a real help in paying debt down.

It actually looks good on your report if you have older lines of credit. Try to keep old lines open, even if you have no intention of using them.

Finally, go easy on the credit applications. It’s relatively small, but each new application negatively impacts your score. Applying for several different cards in a short time can actually disqualify you for the loan you want.

The Bottom Line

Now you know all about getting loans with collateral. But do you know a lender you can truly trust?

At Bonsai Finance, we are the premiere source for loans and other lines of credit. To see how we can help you get the money you need, come explore some of our personal loan options!