Most personal loans are unsecured, meaning you don’t need to put up any type of collateral to get the loan. However, if you cannot qualify for an unsecured loan, some lenders will offer you a secured personal loan. We took a look at the best places to get secured personal loans, including banks, credit unions and online lenders, as well as other options for you to consider.
- Bank and Credit Union Secured Personal Loans
- Online Secured Personal Loans
- Other Personal Loan Options to Consider
Secured Personal Loans from Banks and Credit Unions
If you’re thinking about getting a secured loan, here are some of the banks and credit unions that offer them:
Many banks and credit unions offer secured personal loans, sometimes called savings or CD secured loans, to their members. In general, you will need a savings, CD or money market account with the bank to apply for a secured loan. This is because the bank will use the contents of that account as the collateral for the personal loan. This also means that there is frequently no upper limit on these secured loans, rather the maximum amount is based on the amount of collateral you are willing to put up.
For example, if you have a $200,000 CD with your local bank, you could take out a secured personal loan for up to that amount. The interest rate on these loans may be based on the interest rate on the deposit account plus a margin. If the annual percentage yield on your CD is 1% and the margin rate is 3%, your interest rate on the secured loan would be 4%. Alternatively, the rate may be based on the Wall Street Journal Prime Rate plus a margin.
Because these loans are secured, you’ll see lower interest rates across the board. In our example above, which was based on a real certificate secured loan from a bank, the interest rate was only 4%, which is lower than what you can get on most unsecured personal loans. Terms on these loans may also be longer, with maximums up to 10 years. If the loan is secured by a CD, the maximum term may be the term of the CD itself. Every bank and credit union will have different sets of rates, terms and fees for their secured personal loans.
Online Secured Personal Loans
Most online lenders only offer unsecured personal loans. In fact, in our research, we have only found a few lenders that provide secured personal loans. Some lenders will allow you to apply outright for a secured personal loan, but, in many cases, you’ll have to apply for an unsecured personal loan first before you’re presented with a secured option. For most online lenders, you can check your rate online, so it’s best to shop around a bit to find a good deal.
For most borrowers, we recommend going with your bank or credit union for a secured loan before turning to an online lender. This is because your bank will likely offer lower rates, larger loan amounts and longer terms on secured loans. If your bank doesn’t provide secured personal loans, we recommend checking your rate for an unsecured personal loan. Many credit unions and online lenders are willing to lend unsecured funds to borrowers with limited or poor credit history. If you can’t get a good rate, consider other types of loans or strategies to get the funds you need.
Other Personal Loan Options to Consider
If you don’t think you can qualify for an unsecured personal loan, but are having trouble finding a secured one, we’ve done some research on other loan options and strategies you can use.
Consider a Cosigner
Having a cosigner on a personal loan, especially one with excellent credit, can dramatically improve your chances of getting approved and receiving a good interest rate. Banks and online lenders such as Backed, Citizens Bank, Lightstream, Navy Federal Credit Union, Wells Fargo and LendingClub all allow cosigners or co-applicants on their personal loans. Like securing your loan, having a cosigner is not without its risks -- but the risk is primarily with your cosigner, who is risking his or her personal credit for you. If you choose this option, make sure you can repay the loan.
Nonprofit Organizations or Friends and Family Loan
There are likely nonprofit and religious organizations in your community that make personal loans or grants to help individuals who are struggling financially. These may only be small-dollar loans or loans to be used for utility bills and rent or mortgage payments. However, if you find yourself burdened with unexpected expenses, these organizations can be a lifesaver.
Another option is to get a loan from a family member or friend. You can probably negotiate a much lower interest rate with your family or friends than you could with a bank or online lender. If you decide to go this route, it’s a good idea to write a formal loan contract and even get a third party to administer the loan. There may also be tax implications for the family member or friend making the loan.
Home Equity Loans, Auto Equity Loans or Auto Refinance Loans
Home equity and auto equity loans function the same way: they allow you to borrow against the equity you’ve built up in your home or car. For example, if you have a $100,000 mortgage on your house and you’ve paid off $40,000, you could borrow against the $40,000 in equity you have on your home. Home equity loans typically allow you to borrow even if your house is not fully paid off. Auto equity loans are usually only for paid-off vehicles, whereas auto refinance loans allow you to borrow even if you still owe money on your car.
Because you’re using your home or car as collateral, you need to be aware that your lender can foreclose or repossess if you don’t make payments. If you decide to get one of these loans, make sure you use a reputable lender, such as a regional bank, credit union or well-known online lender. This will ensure you get fair rates and terms (your interest rate should not be more than 36%). Avoid auto title companies as these loans come with high fees and interest rates.
Avoid Predatory Loans
We strongly advise borrowers to avoid auto title loans, cash advances, no credit check loans and payday loans. This is because these loans come with very high interest rates, exorbitant fees and in some cases, extremely short payback times. Because of this, it can be all too easy to fall into a debt trap. For example, a no credit check loan may come with an APR of 160%. On a two-year $5,000 loan, this means you would repay over $16,000 -- over three times the value of the loan.