Loan for Home

Types of Collateral Properties Which Can be Used for a Loan

By Tata Capital
19 December 2025
6 mins read
2736

Introduction

Collateral is any property or asset of value that is put up against a loan as security. Loans involving collaterals are called secure loans because they minimize the risk involved in lending. That is why most financial institutions provide you with competitive repayment terms on secured loans.

Just consider home finance, for example. If you need a large sum of money for purchase, you can pledge any eligible security against the loan and, in return, get the requested amount at affordable home loan interest rates.

What Does Collateral Against Loan Mean?

Collateral against loan refers to borrowing money using property as collateral. The collateral property is an asset pledged in return for an amount disbursed for collateral lending. In case of any default in payment of collateral loans on property, the lender can liquidate the asset or part of the asset to secure his funds.

For example, if you plan on starting a business, you can pledge any qualified asset, like mutual funds, government bonds, etc., against the loan. The asset will act as a security for the amount being lent. You can also obtain loans by using property as collateral.

Types of Collateral

Collaterals are basically of two types –

Immovable property: Immovable property includes your house or a piece of land and liquid assets include insurance policies, government bonds, etc. The value of the collateral you’re pledging, however, must cover the cost of the loan amount disbursed by the lender.
Liquid security: This refers to easily marketable financial instruments that can be quickly converted to cash. These are considered less risky by lenders as they offer high liquidity and stable value. Common forms of liquid security include FDs, insurance policies, listed shares, government bonds, etc.

Not sure what type of properties you can use as collateral? Read on to learn more.

What Types of Properties Are Accepted as Collateral?

1. Residential property

Any sort of residential house can be accepted as collateral by your lender. It can be a self-occupied house you are currently staying in, a rented residential property that you are using as a source of income, or a vacant residential house that you aren’t currently using. This is a popular asset among lenders as it is easy to liquidate in case of default and retains its value over time.

2. Commercial property

Commercial properties are yet another widely used asset in collateral-based lending, such as housing loans.This could either be a commercial property that you are renting out or a vacant property. What’s more, if you put up a vacant property as collateral, you can avail of high-value loans easily. Unfortunately, there is a catch.

They are acceptable if no residential property falls in the underlying area and must be owned by individuals having no live disputes over its ownership.

3. Property with multiple owners

You can also use any property with multiple owners to avail a loan against collateral, say a home loan. Although the condition is that the property must only be shared among family members with the following relations:

Mother and son
Siblings
Father and son
Parents and unmarried daughter

Properties from third parties like parents, friends, or other relatives are also accepted as collateral once they meet the minimum requirements.

4. Open lands

Open lands can be used as loan collateral as long as they have a clear demarcation on their boundaries. These lands must be non-agricultural in nature and must meet the minimum criteria for eligibility as collateral.

Benefits of Loan Against Property

There are several benefits of pledging a property for a loan:

Loan duration

Enjoy flexible loan tenures of up to 17 years when you use collateral property, allowing easier EMI payments and reducing financial stress.

High loan amount

Since the loan is secured by property, you can access a larger loan amount depending on the property’s market value.

Low interest rate

Being a secured loan, a loan against property typically comes with lower interest rates than unsecured loans, making it a cost-effective borrowing option.

How to Choose the Right Collateral Property

When evaluating options to choose collateral property, start by assessing the clarity of ownership and market value. Lenders typically prefer assets with clear titles, stable valuations, and minimal encumbrances, as these reduce lending risk.

The best collateral property is one that is well-maintained, located in a recognised area, and free from ongoing disputes. It is also important to ensure the property for a loan meets the lender-specific eligibility norms. Thoughtful consideration while selecting collateral for a loan can improve approval chances and support smoother processing.

Risks and Considerations When Pledging Collateral

Before you pledge your property as security, it is important to evaluate the potential risks involved:

Risk of asset loss: In case of prolonged default, lenders have the right to enforce recovery, making collateral loan risks a serious factor to assess.
Impact on ownership flexibility: Selling, leasing, or modifying the property may require lender approval, highlighting common pledging property risks.
Valuation and liquidity issues: Market fluctuations, property condition, and location can affect assessed value, forming critical collateral considerations.
Financial discipline required: Irregular cash flows or overleveraging can increase loan against property risks and strain long-term finances.
Legal and documentation clarity: Clear titles and compliance are essential to avoid disputes or delays during loan tenure.

Eligibility Criteria for Collateral Property

Here’s a look at the collateral property eligibility criteria for you to help ascertain whether you have a qualifying collateral:

1. An Unambiguous Title to the Property: The first property eligibility for a loan is that you have a clear title to the property you pledge as collateral. The title of the property should not be under legal dispute.

2. Clear Ownership of the Property: Next, loan against property eligibility criterion is that you should be the legal owner of the property. If there is a co-owner involved, their consent must be taken.

Documentation & Legal Verification Needed

Before a loan is approved, lenders carry out detailed checks to establish ownership, value, and legal clarity of the pledged property. Key requirements typically include:

Title deeds and ownership proofs forming the core collateral property documents
Encumbrance certificate to confirm the property is free from existing charges or disputes
Approved building plans and occupancy certificate, where applicable
Identity and address proofs of all owners of the property
Sale agreement and past chain documents to trace ownership history
Due diligence by legal experts as part of legal verification for collateral
Submission of standard forms covering the property loan documents required

Following a structured collateral documentation checklist helps streamline verification and reduce approval delays.

Conclusion

Are you looking for affordable home finance options? At Tata Capital, we accept both residential and commercial properties as collateral. We offer secured loans on easy-to-meet home loan eligibility terms that are completely customizable as per your financial needs. Select your tenure amount and choose the repayment option that is best for you.Determine your loan eligibility and plan your future installments using our home loan EMI calculator. Click here to check our housing finance schemes today.

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FAQs

What are collateral properties?

A collateral property is an asset with monetary value that a borrower pledges to a lender to secure a loan. These can include real estate, land, fixed deposits, or other valuable assets. If the borrower defaults on repayment, the lender has the legal right to seize and sell the collateral property to recover the outstanding loan amount.

Can you explain the distinction between assets and collateral?

Assets are either moveable or immovable property that can yield a monetary value. An asset pledged as a security against borrowing is known as collateral.

What kind of assets are acceptable as collateral for a mortgage?

Any standard moveable or immovable asset yielding a monetary value is acceptable as collateral. The most common forms of collateral are residential properties by owners – whether they currently reside there or have rented them out.

What type of assets can be used as collateral?

Any asset qualified by the lending institution, either moveable or immovable, can be used as collateral. The most common forms of collateral are government bonds and residential properties.

Can agricultural land be used as collateral?

Yes, a loan can be obtained by using agricultural land as collateral property.

What makes banks request collateral?

Banks use the collateral to safeguard against a potential default in payments by borrowers. According to the law, lenders have the right to sell a part of or the entire property in case of a payment default.

What purpose does collateral serve?

The collateral acts as a safety net for collateral lending, as in case of default in payment, the collateral property can be sold in part or full to recover the damages.

What is collateral property?

A collateral property is an asset that you can pledge to secure a loan. It’s important to note, that in case of default, the lender has the legal right to recover dues by selling the property. Residential property, commercial property, properties with multiple owners and open lands can be used as collateral.

What are the different types of collateral?

Collaterals are broadly classified into two types. Immovable property includes residential or commercial property and land, offered as security based on its market value. Liquid security covers financial instruments such as fixed deposits, insurance policies, listed shares, and government bonds, which are easier to convert into cash and carry lower risk for lenders.

Can I use agricultural land as collateral for a loan?

Yes, you can use your agricultural land as collateral for your loan.

What documentation is required for collateral property?

Documentation required for collateral property includes title deeds, encumbrance certificate, identity and address proofs of owners, and standard application forms, among others.

Can co-owned property be pledged as collateral?

Yes, a co-owned property can be pledged as collateral, provided all co-owners give their consent. Each co-owner must sign the loan agreement and related documents. The lender will verify ownership shares and legal clarity before approving the loan.

What are the benefits of pledging property as collateral?

The benefits of pledging your property as collateral include access to higher loan amounts based on the property’s market value, lower interest rates due to reduced lender risk, and longer repayment tenures of up to several years.

Are there risks in using collateral property for loans?

Yes, there are certain risks to consider when using property as collateral. Prolonged repayment defaults may lead to loss of the asset. Additionally, lender restrictions can limit ownership flexibility, while market fluctuations may affect property valuation.

How do lenders assess collateral property value?

Lenders assess collateral property value through an independent valuation conducted by experts. Factors such as location, property type, age, construction quality, market trends, and prevailing rates are considered to arrive at a fair and realistic valuation for loan assessment.

Can liquid assets be used as collateral?

Yes, certain liquid assets can be accepted as collateral, depending on the lender’s policy. These may include fixed deposits, government bonds, or life insurance policies with surrender value. Such assets are easier to value and can help secure quicker approvals and potentially better loan terms.

What happens if I default on a loan secured by collateral?

If you default on a loan secured by collateral, the lender has the legal right to take possession of the pledged property after due notice. The asset may be sold to recover outstanding dues, including interest and charges, in accordance with applicable laws and loan terms.

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