Can You Use Land As Collateral for a Personal Loan?

When applying for a personal loan, the lender may ask you to put up some of your property as collateral. If you have some vacant land, you may wish to use this as the collateral for your loan. Depending on the standards of the lender, you may be able to use this for collateral, but the terms may not be agreeable.


  • Depending on the lender, your land may be accepted as collateral for a personal loan.

How it Works

Using land as collateral involves allowing the lender to put a lien on the property in exchange for providing a personal loan. When this happens, if you cannot make your payments, the lender can foreclose on the property and sells it to repay the debt. While this does put your property at risk, it could provide you with a way to get access to the money you need.

Value of Land

To determine the amount of money that you can borrow, the lender will want to verify the value of the property. The lender may require an appraisal from a real estate appraiser before the land can be used as collateral. In many cases, the lender will also use a low loan-to-value ratio to determine exactly how much you can borrow through this type of loan. For example, the lender may only offer a 35 percent loan-to-value ratio. This means that if the land is worth $100,000, you could only borrow $35,000 in total.

Understanding the Risk

Allowing vacant land as collateral is a risky proposition for lenders. Because of this, lenders typically use low loan-to-value ratios and high interest rates on these types of loans. With vacant land, you may be more likely to leave the property behind if you cannot afford to make your monthly payments. Lenders must charge higher interest rates to compensate for this extra risk. You may have to pay interest rates in excess of 15 percent, depending on market rates at the time you borrow.

Other Factors to Consider

When determining if you are able to borrow against the value of your land, the lender will also look at several other factors. You must have a solid credit history and a sufficient amount of income to make your loan payments. Each lender will have a minimum credit score; if your score is under the minimum, the bank will not lend to you. If you are also putting up some other collateral in addition to the land, your odds of being approved are better.