Definition of a secured loan
A secured loan is a loan that you get by putting up collateral, like a car or a house. If you miss payments, the lender can sell your collateral to pay off the loan. It may be easier to get a secured loan than other types of loans.
Reasons to get a secured loan
A secured loan may be a good option for you if:
- Your credit rating is low
- Are you looking for a low rate loan?
Remember, however, that you risk losing anything that you have put down as collateral if you get a secured loan.
If you don’t like the idea of ââgetting a secured loan, you are not alone. Bad credit borrowers can look into bad credit personal loans to find an unsecured loan and easier eligibility requirements.
What is an unsecured loan?
The opposite of a secured loan is an unsecured loan. An unsecured loan does not involve collateral. If you miss payments, the lender can sue you, but your assets will not be repossessed or sold immediately. However, these types of loans are more difficult to obtain. In addition, lenders generally charge a higher rate of interest for unsecured loans.
What counts as collateral for a secured loan?
Anything a lender can sell if you miss loan payments can be considered collateral. Here are some examples of common guarantees used by borrowers:
Other examples of potential warranties include jewelry, coins, fine art, boats, RVs, and ATVs.
Where can I get a secured loan?
If you want to get a secured personal loan, start by talking to various personal lenders. For example, you can get a secured loan from an online lender, bank, or credit union. Shopping around with a variety of lenders will help you find the best lender for your finances.
Should I get a secured loan?
If you are having difficulty qualifying for a traditional loan, a secured loan may be the right choice for you.
If you can qualify for an unsecured loan, it is usually a safer choice. However, unsecured loans can charge higher interest rates than secured loans. If you are trying to save money on interest, you may want to get a secured loan.
Here are some pros and cons to help you decide if a secured personal loan is right for you:
- If you don’t have the credit score you need for a personal loan, you may still be able to get approved for a secured loan.
- A secured loan can help you create or rebuild credit.
- A secured loan can allow you to be approved for a loan on your own when you would normally need a co-signer.
- Secured loans often have lower interest rates on personal loans.
- Anything you give as collateral can be sold by the lender if you don’t make the payments.
If you decide that a secured loan is right for you, be sure to ask your favorite personal lenders plenty of questions. For example:
- What is your minimum credit score required to get a personal loan?
- Is it possible that I can claim an unsecured personal loan?
- What interest rate am I entitled to with a secured personal loan? And what interest rate would I get with an unsecured personal loan?
- What can I use as loan collateral?
- How long will I have to repay the loan (what are the repayment terms)?
- Are you charging origination fees or other fees that I should know about?
Taking out a secured loan is an important decision. You deserve all your questions answered before signing on the dotted line and committing to new debt of any kind.
In the meantime, if you’re starting from scratch, check out our guide on how to get a no-credit loan.