A secured loan can help you increase your odds of approval and decrease the cost of your loan, especially if you have poor credit.
However, the trade-off is collateral: You pledge your personal property, such as your home, auto, or savings account, with a secured loan. Your lender can repossess your collateral if you don’t repay the loan.
It’s important to consider whether a secured loan is suitable. It can give you the ability to borrow money, but you must be careful so you don’t lose your home, car, or savings account balance.
In this guide:
- What are secured personal loans?
- Best secured personal loans
- What are the types of secured loans?
- Pros and cons
- Should you get a secured personal loan?
- How to choose the best secured loan
- How to apply
What are secured personal loans?
Most types of personal loans are unsecured, which means you don’t offer collateral the lender can take if you don’t repay. Instead, your lender can pursue you in court if you default. But that costs time and money, so lenders tend to charge more for these loans and limit them to good-credit applicants.
If you have bad credit, your lender may allow you to pledge collateral, often a vehicle you’ve paid off—or almost paid off. You may need to have that vehicle appraised and carry more expensive insurance because it’s similar to a car loan.
Some lenders also allow you to use savings accounts or certificates of deposit (CDs) as collateral. This is often more common with credit unions.
Many lenders require a secured personal loan if you have poor credit. However, even with good credit, many secured loans offer cheaper interest rates. They can be popular among borrowers with good credit too.
Best secured personal loans
Not all lenders offer secured personal loans. Among the ones that provide personal secured loans nationwide, we’ve researched the best options.
Best secured personal loan: Best Egg
Secured personal loan
- Rates up to 20% lower than Best Egg’s unsecured loans.
- Homeowners can use permanent fixtures, such as cabinets and fireplaces, as collateral.
- Funding times are much faster than home equity loans since no appraisal is needed.
If you own your home and have built equity, Best Egg offers a special Secured Loan + Homeowners Discount. Unlike a home equity loan, Best Egg’s secured loan files a UCC-1 lien against permanent fixtures in your home, such as windows or in-ground pools.
Because it isn’t tied to your home itself, an appraisal isn’t required. That translates into faster funding times for you but can make selling your home more difficult if you need to move before your loan is paid off. And should you default, Best Egg can repossess your collateral—even from a new homeowner if you sell.
- Credit score category: Good to excellent
- Soft credit pull to check rates? Yes
- Deposit time: Next day
- Origination fee: 0.99% – 8.99%
- Late fee: Not disclosed
- Interest rates (APR): 5.99% – 29.99% (vs. 8.99% – 35.99% on unsecured loans)
- Repayment terms: 5 – 7 years
First Tech Federal Credit Union
Secured credit union loan
- Must join credit union if approved for a loan.
- Use stocks, certificates, or savings accounts as collateral.
- Savings- and certificate-secured personal loan rates based on current APY, plus 3%.
Many credit unions offer secured loans, but First Tech Federal Credit Union stands out because it’s available nationwide. Anyone is eligible for membership if you join an associated organization. First Tech allows you to use savings accounts, certificates, or certain stocks as collateral for a secured personal loan.
First Tech is also a solid choice if you prefer more peace of mind because it offers an optional DebtSafe protection program that could forgive your loan if you face financial hardship.
- Credit score category: Bad to excellent
- Soft credit pull to check rates? Yes
- Deposit time: Not disclosed
- Origination fee: None
- Late fee: Not disclosed
- Interest rates (APR): 3.00% – 8.30%
- Repayment terms: 5 – 12 years, or until certificate maturity (for certificate-secured loans)
Vehicle-secured personal loan
- Appraisal required for collateral.
- No minimum credit score requirement.
- Can use vehicles such as a car, boat, or RV as collateral for a secured loan.
OneMain Financial is one of the few online personal loan lenders offering a robust network of in-person branch locations, with 1,400 branches in 44 states. OneMain Financial allows you to use vehicles as collateral for a secured personal loan if you complete an appraisal.
OneMain Financial doesn’t have rock-bottom rates, but it’s far less expensive than options such as payday and car title loans. If you have excellent credit, you might qualify for lower rates with another lender. But if you have bad or no credit, OneMain is a solid option.
- Credit score category: Bad credit
- Soft credit pull to check rates? Yes
- Deposit time: Not disclosed
- Origination fee: 1% – 10% or $25 – $500, depending on your state
- Late fee: 1.5% – 15% or $5 – $30, depending on your state
- Interest rates (APR): 18.00% – 35.99%
- Repayment terms: 2, 3, 4, or 5 years
What are the types of secured loans?
Even mortgages and car loans are considered secured loans. But when it comes to secured personal loans, you may be able to use different types of collateral:
- CDs: Many banks and credit unions allow you to use the balance in your CD or share certificate as collateral because you aren’t likely to withdraw the money before the certificate matures.
- Vehicles: Cars, boats, trucks, RVs, and more are the most common collateral for secured personal loans. If you use a vehicle as collateral, expect to purchase full-coverage insurance to protect your collateral in case of an accident.
- Savings accounts: Some banks and credit unions also allow savings accounts to act as collateral if you agree to keep your money locked up for the duration of the loan. This turns the account into a CD.
- Other types of secured personal loan collateral: It’s less common, but specific lenders might allow you to put up almost anything of value, such as gold and silver, valuable artwork, or bonds.
Pros and cons of personal secured loans
Secured personal loans have pros and cons you should weigh before applying.
Lower interest rates:
Your lender can take your collateral if you default. That saves them money, so they pass the savings on to you.
Higher borrowing limits:
Some lenders allow you to borrow more money if you use collateral with your loan.
Can help you build credit:
Double-check that your lender reports your payments to all three credit bureaus just to be sure.
Avoid the need for cosigners:
It’s common to use cosigners if you can’t qualify for a loan on your own, but that can sever you from social support if you default.
Can take longer to process:
Some lenders require you to bring in your collateral for appraisal, which can slow the loan application process.
Can lose your collateral if you default:
This can be devastating, especially if you rely on your collateral—e.g., your car—to earn income.
May need to carry more expensive insurance:
If you’re using a car as collateral, many lenders require you to have full-coverage insurance, which is more costly.
Should you get a secured personal loan?
If you need to borrow money and have bad credit, secured personal loans can be one of the best financial tools. However, if not used wisely, a secured personal loan can cause more damage to your economic life.
Here are signs that personal secured loans might be worth considering if you need to borrow money:
- Have you considered alternatives? As with any financial tool, consider your other options before making a decision. (More on that below.)
- Do you have bad credit? Secured loans are easier to get if your credit is poor. Keep in mind you still must meet other loan requirements.
- Do you have collateral you can use? You won’t qualify for a secured loan without an item of value your lender accepts, such as a car or savings account balance.
- Would you be OK if your lender seizes your collateral? No one plans to pay late when they take out a loan. But that’s important to consider with a secured loan.
- Is getting the lowest-cost financing available a priority? Many people pay higher rates for an unsecured loan because they don’t want to risk their collateral being seized. But if you want the cheapest financing possible, the lower secured personal loan rates might be the way to go.
How to choose the best secured personal loan
Certain features can make some secured loans better than others, and it’s worth keeping an eye out for these as you shop around.
It’s wise to watch for lenders that offer prequalification with a soft credit check because this won’t affect your credit score as much as multiple hard credit inquiries. Even so, keeping your rate shopping limited to a two-week (or less) period can help limit any credit damage.
— All three lenders we profiled above allow prequalification with a soft credit check.
You can use several factors to compare the best secured personal loans, but the annual percentage rate (APR) is the best cost measure. It rolls together all the loan fees and interest, giving you one apples-to-apples comparison to choose the cheapest loan.
Look for the lender’s policies about how collateral works. For example, if you use a savings account, can you not withdraw until you pay off the loan? Will you need an appraisal for the collateral or to insure it with a higher-cost policy?
How to apply for an online secured personal loan
You may need to put in more work to get an online secured personal loan, depending on the lender. But it’s not much different from applying for any other type of personal loan:
- Identify your collateral: Many lenders allow you to use vehicles or bank savings accounts and CDs as collateral. Other lenders allow a more comprehensive range of collateral options, such as expensive comic book collections, stocks, insurance policies, and antiques.
- Check your rate with different lenders: You’ll need to look a bit harder to find personal loan lenders that allow you to use collateral for a secured personal loan. But they exist, and it’s best to get several quotes to find the best secured personal loan rates.
- Complete the entire application: Add other forms or documents you must submit for the complete application with the winning lender. Most people choose the lender that offers the lowest APR.
- Get your collateral appraised: Some lenders may require an appraisal on your collateral to ensure the value is sufficient. Your lender will provide more details about its collateral appraisal requirements.
- Sign up for autopay: If you’re approved and your lender disburses your funds, sign up for autopay immediately. This will ensure you never miss a payment, and you can use this as an opportunity to build credit.
Alternatives to secured personal loans
Secured personal loans aren’t always a wise option. Before you take one out, consider whether these alternatives would work better for your situation:
- Save up: If you don’t need to make the purchase right away, consider taking more time to save. Look for ways to increase your income and decrease expenses to make faster progress.
- Check for financial assistance: If you have low income or poor credit, more grants or low-cost loans may be available than you think. Check 211.org, or call 211 for help finding resources.
- Apply for a secured credit card: If you need to borrow regularly, consider a secured credit card instead. You’ll deposit cash as collateral, but you can borrow as needed.
- Apply for a payday alternative loan (PAL): PALs, often available at credit unions, help you build credit while serving as an affordable alternative to payday lenders.
- Apply with a co-borrower or cosigner: Someone with better qualifications who agrees to repay the loan with you or acts as a backup if you default, respectively.
What are typical secured personal loan rates?
Even the best secured personal loan rates vary among lenders. Here’s a small sample:
|Top lenders’ secured-loan rates|
|Best Egg||5.99% – 29.99% APR|
|First Tech Federal Credit Union||3.00% – 8.30% APR|
|OneMain Financial||18.00% – 35.99% APR|
What has lower interest rates: secured or unsecured personal loans?
Secured loans often have lower interest rates than unsecured personal loans. If you default, the lender will have an easier time recouping its money by taking ownership of the collateral you use for the secured loan.
What are the best secured personal loans for bad credit?
OneMain Financial offers secured personal loans and doesn’t have minimum credit score requirements as long as you meet other qualifications. That makes it a solid option if you need a secured loan and have bad or no credit.
What are the worst secured personal loans for bad credit?
Pawnshop and car title loans are two of the worst secured personal loans. Considered predatory due to their high interest rates, these loans can trap borrowers in an expensive spiral of debt and result in people losing their livelihoods.
Is it easier to qualify for a secured personal loan than an unsecured loan?
Yes, it’s often easier to qualify for a secured personal loan than an unsecured one. Many lenders base their decisions for unsecured loans on credit scores. If you don’t have good credit, you may need collateral to make the lender comfortable enough to approve your loan.
Can you pay off a personal secured loan early?
Yes, in most cases. But it’s wise to check for prepayment penalties first. These fees aren’t standard, but if your contract lists one, it may not be worth it to pay off your secured loan early.
How do secured personal loans affect your credit?
Secured loans affect your credit the same way as an unsecured loan as long as your lender reports your loan information and payments to all three credit bureaus. Some types of secured personal loans, such as pawnshop and car title loans, don’t—which makes it harder to build good credit.