Need to borrow some cash for an unexpected financial need or a major purchase? Secured personal loans are a great option to fill your funding needs that come with great rates and easier approval than some other forms of lending. And while these are awesome things to hear, there is some additional risk that comes with putting up an asset as collateral. But if you understand everything there is to know about these loans, and you find the best secured loans out there — it can be smooth sailing. We used our proprietary SimpleScore system to rate the best secured loans, reviewing rates, eligible accounts, loan amounts, customer satisfaction and customer support.
The 5 best secured personal loans of 2020
|APR Range||Term||Loan Amount|
|Wells Fargo||Varies||N/A||$3K–$250K||CD, savings account||3.25|
|TD Bank||Varies||N/A||$250K–$5M||Investment accounts||3.75|
|First Tech Credit Union||3.00%–9.00%||N/A||$25K–$1M||Stocks, savings account||3.75|
|Fifth Third Bank||5.14%–8.64%||N/A||$2K–$500K||CD, savings account, investment account||4|
|Regions Bank||Varies||N/A||$250–100% of collateral||CD, savings account, money market account||5|
Rates accurate as of September 27, 2020 and exclude autopay discounts.
What is a secured personal loan?
One of the most basic types of loans you can get is a personal loan. By definition, a personal loan is when a bank, credit union or lender gives you the money you need to borrow upfront in exchange for you repaying that money plus interest and fees over an agreed-upon period of time. Compared to unsecured personal loans, secured personal loans generally have a much better interest rate thanks to the decreased risk to the lender. While most people are thinking of an unsecured loan when they talk about a personal loan, a secured option may be ideal if you have the collateral needed to get a lower rate.
[ Read: Personal Loans for Self-Employed ]
How secured personal loans work
Before you borrow money for anything, you need to make sure that you fully understand what you’re getting into. This becomes especially true when taking out a loan that requires you to put up collateral. With an unsecured loan, defaulting on the loan will destroy your credit, but you won’t lose any of your property or assets. With a secured personal loan, though, defaulting can result in a lot more issues.
[ More: Secured vs. Unsecured Personal Loans ]
The major difference between a secured personal loan and an unsecured personal loan is collateral. Collateral is an asset that you “put up” to secure your loan. This could be something like a car, certificates of deposit or your house. If you default on your loan, the lender can take your collateral. While this does increase the risk for you, it lowers the risk for the lender, which means you generally can get a lower rate.
Secured loans vs. unsecured loans
Because of the collateral requirement, there are several benefits and things to consider with secured and unsecured loans. The two biggest differences between the products are with risk and rates. With a secured loan, the borrower (you) carry more risk because you have to put up an asset. The benefit, though, is a lower rate. For an unsecured loan, the lender is taking on more risk because they don’t have a tangible asset helping to mitigate the risk. While this is good for you, you will pay a higher interest rate because of the elevated risk.
What to consider when getting a secured personal loan
There are quite a few things you should be aware of when taking out a secured personal loan. The most important thing to note is what happens if you’re unexpectedly unable to make your payments. What happens to your collateral? Are there any programs in place to help keep you from losing your collateral? Is the risk of the worst-case scenario worth your need for the money? No one takes out a loan expecting to default, but you need to consider all of the possible scenarios just in case.
[ Related: Can Personal Loans Improve Your Credit Score? ]
How to find the best secured personal loan
- Determine how much money you need. You can’t start shopping for the best secured loans until you know exactly how much you need to borrow. By taking the time to figure this out first, you not only make the whole process easier, but you can protect yourself from the temptation to borrow more money than you need.
- Determine what assets you have to use as collateral. Secured loans require collateral. Before you start looking at the different secured loan companies out there, figure out what assets you have that could be used as collateral. Additionally, determine which of these assets you’re comfortable using to secure your loan. While the collateral can help you get a better rate and easier approval, it’s not worth it if the asset is something you can’t deal with losing if life changes.
- Shop your lending options. Once you know what you need, it’s time to start comparing options. The best advice is to keep an open mind and collect as much information about the available options as possible. Check your bank, online lending options, local lenders and any other banks or credit unions offering secured loans. There is no cost or risk to your credit score by shopping for multiple options.
- Make an informed decision. After you explore all the different lending options out there, it’s time to make a decision. Make sure you look at more than just the rate you’re getting. Factors like customer service, lender reputation, repayment terms and programs to help if you have trouble paying are some factors to consider.
The SimpleScore is a proprietary scoring metric we use to objectively compare products and services at The Simple Dollar.
For every review, our editorial team:
- Identifies five measurable aspects to compare across each brand
- Determines the rating criteria for each aspect score
- Averages the five aspect scores to produce a single SimpleScore
Here’s a breakdown of the five aspect scores and their rating criteria for our review of the best credit monitoring services of 2020.
Why do some brands have different SimpleScores on different pages?
To ensure the SimpleScore is as helpful and accurate as possible, we developed unique criteria for every category we compare at The Simple Dollar. Since most brands offer a variety of financial solutions, their products and services will score differently depending on what we’re scoring on a given page.
However, it’s also possible for brands to have different SimpleScores across multiple pages on The Simple Dollar. For instance, if we compare Experian’s ID theft monitoring services using SimpleScore, it scores a 4 out of 5. However, if we apply our SimpleScore methodology for credit monitoring services, Experian scores a 4.4 out of 5. Each unique criteria results in separate SimpleScores for multiple brands based on what we’re comparing.
Questions about our methodology?
Email Hayley Armstrong at [email protected]