What is a Secured Personal Loan?
A secured personal loan is called that because the loan is secured by some form of collateral. Unsecured personal loans rely on your personal credit score and financial picture to determine whether you are eligible for a loan, making them less accessible to people with poor credit. On the other hand, secured loans take into consideration the value of your collateral, reducing the importance of your credit score.
How do secured personal loans work?
The one major difference between secured and unsecured personal loans is the collateral. Collateral offsets the risk a lender takes when they offer you credit. In return, the lender may offer you a better deal – such as a lower interest rate or higher loan amount. But remember, when you use an asset as collateral, the lender obtains the right to repossess your asset if you fail to pay back the loan.
What can you use to secure a personal loan?
Technically, anything can be used as collateral, as long as its value is equal to or more than the loan amount. The most common types of collateral are vehicles, savings accounts, and art/jewelry. Every lender sets its own collateral requirements, so be sure to read the guidelines before submitting a formal application.
Where can you get a secured personal loan?
Secured personal loans are a lot harder to find than unsecured personal loans. Currently, only a limited number of banks and credit unions offer secured personal loans. A small number of lenders also specialize in approving secured personal loans online.
Compare 5 Secured Loan Companies
1. Wells Fargo
Suitable for: Qualifying within hours and getting the funds by the next day
Loan amount: $3,000 - $100,000
APR: 5.49% - 24.49%
Loan terms: 12-84 months
- Only big bank to offer secured personal loans
- Process is quick and easy
- No need to go into a branch
- Excludes borrowers with credit scores below 600
- Only Wells Fargo savings accounts and CDs are accepted as collateral
Wells Fargo is the only one of the big four banks that offers secured personal loans. The only acceptable types of collateral are a Wells Fargo savings account or certificate of deposit. Therefore, if you don’t already have one of these types of accounts with Wells Fargo, you will need to open one before applying for a secured loan.
The good news is that if you use a CD or savings account as collateral for a loan, you can typically qualify within hours and have the funds within the same or next business day. This makes getting a secured personal loan from Wells Fargo a far more painless experience than applying for an unsecured loan from any of the big banks.
2. TD Bank
Suitable for: Using a secured loan to build your credit score
Loan amount: $2,000 - $50,000
APR: From 6.99% - 18.99%
Loan terms: 12-60 months
- Much lower credit score requirement (640) than for unsecured loan (700)
- No origination fees
- Larger loan amount (and almost as quick) than an express loan
- Only available in 15 states in the eastern U.S. (and DC)
- Loan can only be secured by a TD Bank account
Aside from Wells Fargo, TD Bank is the only other major bank we’re aware of that offers secured personal loans. In TD Bank’s case, it only allows secured loans to be used for the purpose of credit-building. For all other purposes, it offers unsecured personal loans and express personal loans.
The only acceptable forms of collateral are a TD Bank savings account, money market account, or certificate of deposit. The good news is you will still earn interest on the account while it is being used to secure your loan, which helps to partially offset the interest you pay to TD Bank.
3. Navy Federal Credit Union
Suitable for: Veterans and people with current ties to the armed forces, DoD, or National Guard
Loan amount: $25,000+
APR: 2-3% + savings/CD rate
Loan terms: Up to 180 months
- Market-beating APRs
- Savings accounts and CDs accepted as collateral
- Once you join the credit union, membership is for life
- You must be (or become) a member and have a Navy Federal savings account or CD
- Vehicles not accepted as collateral
Navy Federal Credit Union is the largest credit union in the United States, with more than 9.1 million members. It serves active-duty service people, reservists, and veterans of the armed forces, as well as Department of Defense employees and contractors. Family members of people who meet the eligibility requirements are also eligible.
Navy Federal offers two types of secured loan: a shares secured loan and certificate secured loan. A shares secured loan is fully secured by your Navy Federal Savings Account. There is a $25,000 minimum loan amount for 61-84 months and $30,000 minimum amount for 85-180 months. You will continue to earn dividends as the loan is paid off. The certificate secured loan lets you borrow up to 100% of your certificate’s principal. The repayment term is up to 60 months.
Suitable for: Connecting to a vast network of online lenders providing secured loans
Loan amount: $1,000 - $100,000
APR: 3.49% - 35.99%
Loan terms: 12-84 months
- Access a wide range of loan options with one application
- Great customer support
- Many different types of collateral, including boats, RVs, powersports equipment, and motorbikes
- Website does not have enough information about APR rates and repayment terms
- Limited FAQ section
LendingTree is an online loan marketplace which enables you to quickly compare pre-approved secured personal loan offers from many different lenders. The application process is quick, easy, and entirely online with initial pre-qualified rates coming through within minutes.
An attractive feature of LendingTree is that its partners offer secured personal loans that accept a wide range of assets as collateral. Most secured loans involve using vehicles as collateral, including new and used cars, motorbikes, scooters, boats, and RVs. Some of LendingTree’s partners also accept savings accounts and certificates of deposit as collateral.
5. OneMain Financial
Suitable for: Getting a secured personal loan with bad credit
Loan amount: $1,500 - $20,000
APR: 18.00% - 35.99%
Loan terms: 24-60 months
- Very transparent about rates and terms
- Offer both secured and unsecured loans
- Accepts any type of motor vehicle
- You can’t request a secured loan (OneMain decides whether you qualify for secured or unsecured)
- Process isn’t completely digital
- Interest rates are very high
OneMain Financial is an alternative lender offering secured and unsecured loans online. The way it works is that you enter your personal and financial information along with your desired loan amount. Within seconds, you’ll see if you’ve been approved for a secured or unsecured loan.
If you are approved for a secured loan, you will need to offer collateral, such as a motor vehicle. Then, OneMain Financial will organize a time for you to visit a branch to verify your collateral, identity, income, expenses, and employment. After you review and accept your loan terms, you can ask to receive a check at the branch or to have the funds deposited directly into your checking or savings account.
Advantages and Disadvantages of Secured Loans
Secured loans generally offer the following when compared to unsecured loans:
- lower interest rates
- longer repayment terms
- higher loan amounts
They also have more flexible credit score requirements than unsecured loans. That’s because when you apply for a secured loan, the lender takes the value of your collateral into account instead of just relying on your credit score and financial profile.
The main disadvantage of a secured loan is that you risk losing your collateral if you miss or default on payments. The greater the value of your collateral, the greater the risk. Therefore, it’s important to carefully consider whether you can keep up with payments before taking out a secured loan.
How to Get a Secured Personal Loan
You can get a secured personal loan from some banks and credit unions as well as from a handful of the top personal loan companies. To apply for a secured personal loan, you'll need to complete an application and usually give information about your employment status, income, and credit rating. Most importantly, you'll have to offer something as collateral on the loan. Collateral usually takes the form of a vehicle, savings/investment account, or art/jewelry.
Whether you’re motivated by poor credit or a desire for lower interest rates and longer repayment terms, secured personal loans can be a good option for personal financing. Now, you have all the information at your fingertips to choose the right option for a secured personal loan.
Secured Personal Loans: Frequently Asked Questions
Where is the right place to get a secured loan?
The right place to get a secured loan depends largely on what you’re willing to put up as collateral. If you are a customer of a bank or credit union that offers secured personal loans, then you may be able to use a savings account or CD as collateral. If you are willing to secure your loan with a vehicle that you own in full, then there are a handful of alternative lenders offering decent rates.
Are secured loans easier to get?
Again, the answer to this question depends on what you are willing to use as collateral. To qualify for a secured loan, the value of your collateral must be equal to or greater than the value of the loan amount. Therefore, the more valuable your collateral, the more money you may be able to borrow with a secured loan.
Are secured loans a good idea?
Secured loans involve an important trade-off compared to secure loans. The interest rates and credit requirements are much more favorable, but you carry the risk of losing your collateral if you fail to make loan payments on time. Before accepting a secured loan, you should carefully consider whether you can make the monthly payments for the duration of the loan terms. As long as you meet the monthly payments, then your secured loan won’t cause you any problems.