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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.
A secured loan 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.
A secured loan might be a good option for you if:
Remember, though, you risk losing whatever you put up as collateral if you get a secured 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.
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.
Anything a lender can sell if you miss loan payments may be considered collateral. Here are some examples of common collateral used by borrowers:
Other examples of potential collateral include jewelry, coins, fine art, boats, RVs, and ATVs.
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.
If you're having trouble qualifying for a traditional loan, a secured loan may be the right choice for you.
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.
Here are some pros and cons to help you determine if a secured personal loan is right for you:
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.
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.
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