Min. Credit Tier
3.99% to 14.99%
$10,000 to $50,000
36 or 60 months
5.94% to 35.97%
$1,000 to $50,000
24 to 84 months
18.00% to 35.99%
$1,500 to $20,000
24 to 60 months
Up to 35.95%
$2,525 to $20,000
18 to 30 months
What Is a Secured Personal Loan?
A secured personal loan is a lump sum installment loan that
requires the borrower to offer collateral to receive the funds. The lender
takes a lien on the collateral, such as a motor vehicle, to protect against the
chance of default. Once the loan is repaid with interest, that lien is removed.
How Do Secured Personal Loans Work?
You typically need to have a minimum amount of equity in
your home or vehicle. Some lenders that offer auto-secured loans may require
you to own your vehicle outright. By accepting a secured loan, you give the
lender the right to take possession of the collateral in the instance of
default. However, you can still use your collateral while the loan is
outstanding, as long as you continue making payments.
Reasons to Get a Secured Personal Loan
Applying for a secured personal loan can help you get a
lower rate, but it’s still not a good idea to borrow money for something that
isn’t a need. Some common circumstances when it may a good idea to get a secured
- Debt consolidation to save money on interest
- Home or vehicle repairs
- Large purchases, such as appliance replacement
- Medical bills
- Emergency travel
- Moving costs
- Wedding expenses
How to Get a Secured Personal Loan
The process will vary by lender. But in general, you can
expect the following.
- See where you stand: Check your credit report at
AnnualCreditReport.com and dispute any errors. Next, check to see how much
equity you have in your home or vehicle, and eliminate any lending options you
don’t qualify for based on the collateral you have.
- Prequalify with a few lenders: Choose two or three lenders
that you think you can qualify for and check your rate. This will only require
a soft credit check.
- Select the best offer: Choose the lender that can offer you
the lowest APR, the fewest fees, and the best terms.
- Plan for repayment: Secured loans can be risky, so it’s
important to have a plan for repayment. Build your monthly payment into your
budget and make sure you won’t be stretched too thin.
- Provide additional documentation and apply: You’ll need to
prove you own your collateral, and some lenders will require an appraisal or a
Limited Power of Attorney. Once you formally submit your application, the
lender will run a hard credit check, which will minimally and temporarily
decrease your credit score.
- Sign and accept: After reading through the terms, sign your
loan documents in the lender’s online portal.
- Wait for direct deposit: This can happen as soon as the same
day or up to a couple of weeks later if you’re required to mail documents or
schedule an appraisal.
Where Can You Get a Secured Personal Loan?
Secured personal loans are most commonly offered at banks
and credit unions, but a few online lenders also offer them. The process is
often streamlined and can be faster when you go through an online lender. With
some lenders, you may be able to apply directly for a secured loan. With
others, you’ll submit a personal loan application and may be offered either an
unsecured or secured loan. If you’re looking for a collateral loan with bad
credit, your best bet will likely be an online lender like OneMain Financial or
Secured Loans to Avoid
- Title Loans: These are short-term, no-credit-check loans
secured by the title of your vehicle. Because the APR is typically 300%, title
loans are risky and difficult to repay. In fact, one in five title loan
borrowers end up having their vehicles repossessed by the title lender,
according to the CFPB.
- Secured Loan Scams: If anyone asks you to “secure” a loan
with upfront payment, such as a prepaid card, it’s definitely a scam. Should
you choose to work with a secured lender that is not on this list, make sure
they are registered in your state.
A secured loan can provide you with a lower APR or even
qualify you for a loan you might otherwise not be eligible for. But since
there’s always the risk of losing your possession if you default, you should
carefully plan for repayment of your secured personal loan. Make sure you
choose a term with a monthly payment you can afford, and choose the best option
that you qualify for based on your available equity and creditworthiness.