Tips for comparing secured personal loans
Not sure which secured personal loan is right for you? Here are some things to consider when comparing your options.

Look at rates and fees
There are many applicable fees that can add to the cost of your loan. These include origination fees, which are applied at the start of your loan and can frequently be as high as 10% of the borrowed amount. You’ll also need to look at your loan’s interest rate, expressed as APR, to determine the actual cost of borrowing that money. Most lenders charge late and returned payment fees if you aren’t able to make your full payment on time each month.

What loan terms do you need?
Your loan term is the amount of time you’re given to repay your debt, and will determine how much your monthly payment is in the end. Some lenders offer limited repayment terms, which equates to a higher monthly payment requirement. Others may have a wider range of term options, giving you the ability to adjust your monthly payment to meet your budget.

Do you really require a secured loan?
Most personal loans are unsecured, meaning they don’t require any collateral to secure the loan. For many borrowers, this could be the best and easiest option. But if you want to lock in a lower interest rate or can’t qualify for a personal loan on your own, offering to secure the loan with collateral could open up your options.

Can you afford to lose your asset?
Securing a loan with collateral makes the debt less risky for lenders, as they can legally take your asset if you default on your loan. Of course, that makes it more risky for you. If you think there’s any chance you might not be able to fulfill your repayment obligations, seriously consider whether you can afford to lose your securing asset.

How to get a secured personal loan
Here’s a look at how to get a secured personal loan and what to have on hand before you start the process.

Know what you have to use as a securing asset
Not all assets can be used to secure a personal loan, so you’ll need to consider what you have to offer and what lenders will accept. Depending on the lender, this might include a:

Clean car or truck title.
Clean recreational vehicle title.
Savings or money market account balance.
CD balance.
Home equity.
Certain fixtures in your home.
Whichever asset you use may need to be appraised prior to loan approval.

Shop around for lenders
Now it’s time to start looking for lenders. While home equity borrowing options abound, there are only a handful of lenders that offer true secured personal loans these days. The five lenders mentioned above are a great place to start.

Consider each lender’s loan minimum and maximum, how long your repayment term options would be, and what assets are accepted as collateral. Then, see whether you can apply online without affecting your credit.

Understand your budget
Your secured loan’s monthly payment will be determined by the loan amount, your repayment term, and your loan’s interest rate. Consider what you can afford each month and what your budget will allow, then back-calculate how much you can reasonably borrow.

Apply
Most lenders will allow you to apply for your secured personal loan online, often without affecting your credit score. You can then review your loan terms and options before deciding to proceed with your loan.

If you find the right loan for you, you can choose to move forward with the process. In some cases, you may need to visit a local branch location to finalize the loan, while other lenders will let you do everything online.

Provide required documentation
Be ready to provide the lender with your personal information, such as your name, birthdate, contact info, and Social Security number, at minimum. If securing your loan, you’ll also need to provide information about the asset, such as the year, make, model, and mileage of a vehicle.

Sign your loan documents and get funded
Once your loan is approved, it’s time to sign your promissory note—or your personal guarantee to repay the debt as promised or lose your securing asset—and get funded. If your loan is being sent by ACH transfer or wire, you may need to provide the lender with your preferred account’s routing and bank account number.

Alternatives to secured personal loans
Not sure if a secured personal loan is right for you? Here are some alternatives to consider.

Unsecured personal loan
Most personal loans are unsecured, which gives you access to a lump sum installment loan without risking any of your valuable assets. If you’re able to qualify for an unsecured personal loan based on factors like your income and credit score, this may be the best choice to get the cash you need without offering any collateral to a lender.

Tap into home equity
If you own your home (even if you have a remaining mortgage balance), you may be able to tap into its equity with a home equity loan or home equity line of credit (HELOC). While this is still a form of secured loan, it can give you access to more funds—and often at a lower interest rate than a secured personal loan. In the case of a HELOC, you’ll get an open and revolving line of credit that you can tap into as needed for years to come, regardless of what expenses may arise.

Use a credit card
If you are facing a sudden expense, unexpected repair, or big purchase, a credit card can be one option to consider. If you have available credit, you can charge the purchase to your card and either pay the balance in full by the end of the next statement cycle (saving you interest charges), or carry the balance for a few months until you can repay the debt. Many credit cards also offer cash advances against your line of credit, though these typically come with fees and higher interest rates.

If you have a credit card with an introductory 0% APR offer on purchases, you may even be able to pay off your large purchase over a number of months without incurring any finance charges.

Secured personal loans: key considerations
These are some of the most important things to keep in mind if you’re looking at a secured personal loan.

Can you pay off a secured personal loan early?
Many lenders will allow you to repay your personal loan (secured or unsecured) ahead of schedule. By paying off your secured loan early, you can save yourself money on interest charges and free up those monthly funds even sooner. As long as your lender doesn’t charge a prepayment penalty, you can feel free to contribute a little—or a lot—extra to your payment each month.

Credit score impact
Even when taking out a secured personal loan, your credit score may be a factor for eligibility. This means that lenders will usually conduct a soft pull (soft inquiry) on your credit to pre-qualify you for the loan and propose initial loan terms, then conduct a hard pull (hard inquiry) once you decide to move forward with the loan. This inquiry can affect your credit score, even if you don’t end up taking out a loan.

Additionally, your new loan will affect your credit in a few different ways. It will lower your overall age of accounts, increase your total debt burden and debt-to-income ratio, and increase your overall new credit percentage. Each of these factors plays into your credit score calculation.

Interest rate
A secured personal loan typically has a lower interest rate than an unsecured loan, all other factors being the same. That’s because a secured loan is considered less risky for lenders and provides them with simple recourse if you default.

Even still, your loan will have an interest rate attached to the debt. The higher your rate, the more your loan will cost you each year and over the course of repayment.

TIME Stamp: Secure loans present more risk to you, less to lenders
Taking out a secure personal loan can be one way to access needed funds if you have a lower credit score, limited credit history, high debt-to-income ratio, or otherwise can’t qualify for an unsecured loan. These loans are backed by a collateral asset, such as a vehicle title or savings account, and present less risk to lenders. For this reason, it may be easier to qualify for a secured personal loan and borrowers may find that interest rates are also lower on average. However, by securing a loan with collateral, borrowers should note that they are risking that asset if they default on their repayment.

Frequently asked questions (FAQs)
Is it easy to get a secured personal loan?
In general, it is easier to get a secured personal loan than an unsecured loan, because the collateral asset securing the loan makes it less risky for lenders. However, borrowers will still need to meet certain criteria for borrowing, which may involve their credit score, income, age, location, and debt-to-income ratio.

Are secured loans better for bad credit?
If you have bad credit or a limited credit history, secured loans may be a better option and more accessible than unsecured loan options. Not only can it be easier to qualify for a secured loan product, borrowers may also find that their loan terms—including repayment options and interest rate—are better when offering collateral.

Do banks prefer secured loans?
Banks, and lenders in general, may prefer secured loans as they are less risky than unsecured debt. However, not all banks or financial institutions offer secured loans.