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Secured personal loans explained
Lock in a lower rate by guaranteeing your loan with an asset.
A secured personal loan can be used to pay for just about anything — from a car to a big expense — and they typically have lower rates than unsecured loans. But you risk losing your asset if you default, so consider your finances carefully before you borrow.
How does a secured personal loan work?
A secured personal loan allows you to borrow money by using an asset — like a savings account or car — as collateral. Because of this, lenders may offer larger loan amounts, sometimes up to $100,000. You’ll still need to meet the lender’s income, debt and credit requirements to qualify, but securing a loan with an asset can increase your chance of approval.
There can be a major drawback, however. If you’re unable to repay your loan, your lender may seize your asset and report your default. This means you’re down an asset and your credit score will fall. The extra risk for the borrower is why interest rates tend to be lower, but you should be certain you can repay before pledging any asset as collateral.
Many lenders offer both secured and unsecured loans, so make sure you know the difference when you apply.
What assets can be used as collateral?
Although it varies by lender, these assets are commonly used to secure a personal loan:
- Your vehicle. If you’re buying a new or used car — or if you have a car that is less than two years old — you can generally use it as collateral for a secured loan. For borrowers with bad credit, an auto title loan can be used to secure a short-term loan, but these are much more risky than a standard personal loan.
- Your home. If you own a home, you can draw against the equity you have in the property to secure your loan. These are commonly used for home renovations and college expenses.
- Your savings. Banks and credit unions may allow you to use your savings account or a CD as collateral for a loan. You can typically borrow a percentage of the money you have stashed away. But like with all secured loans, you risk losing your savings if you default.
- Your luxury items. Some lenders are more flexible with the assets they let you use. If you own expensive jewelry, fine art, precious metals, luxury cars or even some antiques, you can use it to secure a personal loan.
Where can I get a secured personal loan?
When you’re shopping for a secured loan, there are three types of lenders you should look into:
Banks and credit unions
Banks and credit unions frequently offer secured loans to their customers and may even cap the interest far below the nationwide maximum of 36%. But many only accept certain assets — like a savings account with the institution — as collateral. And while they can be used to quickly get cash, they may have stricter requirements than an online lender.
Online lenders don’t offer generic secured loans as frequently as banks and credit unions. However, there are some reputable lenders, including OneMain Financial, that will accept some assets as collateral for a loan. You can often check your APR without affecting your credit, so compare rates and fees to find an online lender that competes with a bank or credit union.
Compare lenders that offer secured personal loans
|Provider||Max Loan Amount||APR rate||Minimum Credit Score|
|OneMain Financial||$20,000||18% to 35.99%||300|
|BlockFi||$100,000,000||4.5% (Starting at)||Not stated|
|Umpqua Bank||$100,000||9.02% (starting at)||650||Read review|
|Regional Finance||$12,000||Varies||550||Read review|
|PNC Bank||$35,000||as low as 5.74%||Not stated||Read review|
|Mariner Finance||$25,000||As low as 24.99%||Not stated||Read review|
|Regions Bank||$50,000||7.99% to 17.99%||Not stated||Read review|
|M&T Bank||$50,000||6.24% to 12.74%||Not stated||Read review|
|Key Bank||$50,000||7.49% to 15.59%||Not stated||Read review|
|Reliable Credit||Up to $1,000||17% to 30%||Not stated||Read review|
|Borro||$5,000,000||Varies||Not stated||Read review|
Pros and cons of a secured personal loan
- Lower rate. Because they are less of a risk for the lender, secured loans have lower interest rates.
- Flexible. You can typically purchase whatever you need to with a secured personal loan as long as the amount doesn’t exceed your secured asset’s value.
- Minimal requirements. Offering an asset to secure a personal loan can help you get approved for loans you may not otherwise qualify for.
- Risk your asset. While you may get a lower rate, you can lose your asset if you default on the loan.
- Limited loan amount. When you attach your asset to a secured loan, it needs to be valued. This value will then be used to determine the amount you can borrow.
- Not common. Although banks and credit unions are more likely to offer a secured loan than an unsecured loan, there are still less options available when you want to borrow a secured personal loan.
5 factors to compare between secured personal loans
Use these five factors to help guide you toward a lender that fits your financial needs:
- Approved assets. Lenders have different requirements when it comes to secured loans. You may not be able to secure the asset you are planning to, so check this before you apply.
- Interest rate. Compare the minimum and maximum interest rate against other lenders. Unless you have excellent credit, you’ll want to know how much you can be charged. In some cases, you might find a lender that offers unsecured loans at a better rate — which could mean less risk and less money spent.
- Loan amount. Find out what loan amounts the lender offers. If it won’t cover the expense you plan on covering, then it won’t be a good fit for you.
- Loan terms. Generally, loans are available for terms of between one to seven years. If you need a longer loan — or a much shorter one — find a lender that allows you to repay at your speed.
- Fees. Check upfront fees such as application or origination fees as well as ongoing annual or monthly fees. These will add to the cost of your loan.
Is a secured loan the right option for me?
When it comes to secured personal loans, here are four questions to ask yourself before you borrow:
- Do you have an asset or want to buy one? Lenders will require that you either be looking to buy an asset with your loan or that you already have an asset that meets its criteria. If you don’t, then an unsecured loan may be a better option.
- Does your asset meet the lender’s requirements? Lenders will have requirements for the asset, such as its age or value. For instance, if you’re using a vehicle as security, it may need to be under a certain age. If you’re using a savings or investment account, you may need to have a certain amount in the account.
- Do you meet the lender’s requirements? In addition to restricting the asset that can be used, a lender may also require a certain debt-to-income ratio, income or credit score. Check to make sure you and your asset qualify for the loan.
- Can you manage your repayments? If you find yourself unable to repay a secured loan, your lender is able to repossess the asset you offered as a guarantee in addition to charging other fees.
A secured personal loan can help you score a lower interest rate. And if you budget carefully, you won’t have to worry about losing your asset. Just compare your personal loan options to find the lender that best meets your needs.
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