Adam McCann, Financial Writer
A secured personal loan is a personal loan that requires the borrower to provide collateral to the lender. The collateral “secures” the loan because the lender can keep the collateral if the borrower is unable to pay back the loan. So there’s a lot less risk of the lender losing money than with an unsecured personal loan, which doesn’t require collateral.
The major benefit of a secured personal loan is how easy it is to get. A secured personal loan can often get you lower interest rates than you’d receive with an unsecured personal loan, as well. The downside is that you’re putting something valuable on the line. If you secure a loan with your car, for instance, defaulting on the loan would mean losing your means of transportation as well. It’s important to be aware of exactly how secured personal loans work before applying.
What is a secured personal loan? Fast facts:
- A secured personal loan is a personal loan that requires collateral.
- The lender can take possession of the collateral if you default.
- The collateral usually needs to be at least as valuable as the amount you borrow. Some lenders might offer partially secured loans, where the collateral is worth less.
- If you’re unable to pay back the loan, the lender will use the collateral to recoup amounts owed. Any excess amount will be returned to you.
- It’s not difficult to get a secured personal loan with bad credit because the lender has low risk.
If you have good or excellent credit, you’re probably better off getting an unsecured personal loan. If you have bad-to-fair credit, you may still qualify for some unsecured loans, though your interest rates will be high. You’ll have to weigh those rates against the cost of putting down collateral for a lower APR.
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