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A secured loan is a loan “backed” by collateral — such as a vehicle or house — that the lender can take if you don’t pay the loan. Secured loans can be easier to qualify for and generally have lower interest rates. Here, we’ll discuss what a secured loan is, when it’s a good idea to take one out, and the risks associated with this type of loan.
Definition of a secured loan
A secured loan https://paydayloansohio.net/cities/reading/ is a loan that you get by putting up collateral, like a car or a home. If you miss payments, the lender can sell your collateral to pay back the loan. It can be easier to get a secured loan than other types of loans.
Reasons to get a secured loan
- Your credit score is low
- You’re looking for a low-interest loan
If you don’t like the idea of getting a secured loan, you’re not alone. Low-credit borrowers can look at personal loans for bad credit to find a loan with no collateral and easier qualifying requirements.
What is an unsecured loan?
The opposite of a secured loan is an unsecured loan. An unsecured loan doesn’t involve collateral. If you miss payments, the lender can sue you — but your possessions won’t be repossessed or sold right away. However, these types of loans are harder to qualify for. Also, lenders usually charge a higher interest rate for unsecured loans.
- Home: Your home can be collateral for a mortgage, home equity loan, home equity line of credit (HELOC), or second mortgage.
- Savings account: Also known as a savings-secured loan.
- Car: If you own your car, you can use it as collateral on a secured loan.
- Certificate of deposit (CD): Also known as a CD-secured loan.
- Business: A secured business loan uses the value of business assets as collateral.
Where can I get a secured loan?
If you’re interested in getting a secured personal loan, start by talking to a variety of personal loan lenders. For example, you can get a secured loan with an online lender, bank, or credit union. Shopping around with a variety of lenders allows you to find the best lender for your finances.
Should I get a secured loan?
If you can qualify for an unsecured loan, that’s generally a safer choice. However, unsecured loans can charge higher interest rates than secured loans. If you’re trying to save money on interest, you might want to get a secured loan.
- If you don’t have the credit score needed for a personal loan, you might still get approved for a secured loan.
- A secured loan can help you build or rebuild credit.
If you decide that a secured loan is right for you, make sure to ask your favorite personal loan lenders plenty of questions. For example:
Taking out a secured loan is a big decision. You deserve answers to all of your questions before signing on the dotted line and committing yourself to new debt of any kind.
In the meantime, if you’re starting from scratch, check out our guide on how to get a loan with no credit.
The Ascent’s best personal loans
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.