Best Secured Personal Loans of 2023

» COMPARE: See your bad-credit loan options

What is a secured personal loan?

A secured personal loan is a loan you get by pledging something you own, typically a vehicle or savings account, in exchange for borrowed money that you repay over time with interest.

These loans are offered by online lenders, banks and credit unions. Loan amounts are typically from $1,000 to $50,000 and may be tied to the value of your collateral. Annual percentage rates are from 6% to 36% and repayment terms are from one to seven years.

» MORE: Secured vs. unsecured loans: What’s the difference?

How do secured personal loans work?

To get a secured loan, your collateral must meet a lender’s requirements. For example, you have to own your car to get an auto-secured personal loan, and a lender may require an investment or savings account with a certain dollar value in order to accept it as collateral. Typically, the collateral’s value must be equal to or greater than the loan amount.

Like an unsecured loan, your credit, income and other debts are still central to getting approved for a secured loan, but offering up collateral lowers the risk to the lender. In turn, approval odds are better for secured loans, and the rate is typically lower.

If you qualify, the lender will place a lien on your collateral, which may give them the right to take it if you fail to repay the loan.

These loans are typically repaid in equal monthly installments, and most lenders report payments to the three major credit bureaus. This means if you stop making payments, you risk losing the collateral and your credit score will likely drop.

Once the loan is repaid, the lender no longer has the right to take your collateral.

Secured loan examples

Home equity loans and HELOCs: A home equity loan or line of credit is a second mortgage that lets you access cash based on the value of your home. As with the initial mortgage, a lender can take your house if you don’t repay.

» MORE: HELOC vs. home equity loan

Auto-secured loans: With an auto-secured loan, the lender considers information like the car’s make, model and year — in addition to your credit and finances — to decide your rate. If approved, you send the lender your title and they return it once the loan is paid off. These are different from auto title loans, which can have triple-digit APRs (more on those below).

CD loans: If you have a certificate of deposit with a bank, you may be able to use it as collateral for a personal loan. Rates are usually low on CD loans — typically starting a couple of percentage points above the CD rate — and it’s one way to access funds without withdrawing the CD early and paying a penalty.

401(k) loans: An employer-sponsored 401(k) plan may allow employees to borrow from their retirement account for up to five years. Rates are usually low on 401(k) loans, but by borrowing from the account, you’re missing out on market gains and compound interest from your retirement savings.

Pros and cons of secured loans

Weigh the benefits of getting a secured loan against the potential drawbacks before you borrow.

Pros

• Better approval odds. A lender is more likely to approve a secured loan application.

• Lower interest rates and higher loan amounts. Because the risk of losing money is lower for the lender, you may be approved for a larger loan at a lower rate.

Cons

• The lender could take your collateral. If your car is collateral for a loan and you need it to get to work, for example, losing it could put you in a worse situation than before you borrowed.

• Not as widely available as unsecured loans. Many banks, credit unions and online lenders offer only unsecured loans.

Where to get a secured personal loan

Banks: Banks usually offer savings- or CD-secured loans. An account you already have with the bank will be collateral, and you can’t access that money until the loan is repaid.

» MORE: Best bank loans

Credit unions: Some credit unions offer share-secured loans, which is another term for savings-secured loans. The credit union will hold onto your savings while you repay the loan.

If your credit union doesn’t offer these, you may qualify for an unsecured loan, because credit unions are known to have softer borrower requirements and lower APRs.

» MORE: Credit union loans offer low rates, flexible terms

Online lenders: Most online lenders that provide secured loans require a vehicle as collateral. Some let you apply for this loan upfront, but others may show you the option only after you’ve tried applying for an unsecured loan.

Many lenders let you check your rate on an unsecured loan without affecting your credit, so you can pre-qualify with multiple lenders to find the best rate.

» MORE: Compare the best online loans

How to get a secured loan

The process for getting a secured loan can vary based on the type of collateral you’re using, but here are some of the steps you’ll take:

1. Inquire about the loan. Some lenders offer secured loans only after an applicant does not pre-qualify for an unsecured loan. If you can’t pre-qualify with the lender, or you don’t see a secured loan option, ask the lender directly about secured loans.

2. Check your budget. Review your cash flow to find out how much you can afford to pay toward the loan each month. Use a personal loan calculator to see what APR, loan amount and repayment term you’d need to keep monthly payments affordable.

3. Choose a lender. Compare lenders to see what kind of collateral they accept and what rates they offer.

4. Gather documents. Before you apply, gather the documents most lenders require for an application. These can include a government-issued ID, bank statements, W-2s and pay stubs. You may also need documents for the collateral, such as a car title.

5. Apply. Most lenders have online applications. Once you submit, an approval decision may take a couple of days or longer if a lender has to assess the collateral’s value.

» MORE: How to apply for a personal loan

Tips to apply for a secured loan with bad credit

If you have bad credit (a score of 629 or lower), here are a few tips to prepare for a secured loan application.

• Review your credit and debts. Pull your credit reports to see what a lender will see when evaluating your application, including any delinquencies or errors, and find opportunities to build your credit before applying. You can see your reports from the three major credit bureaus at Annualcreditreport.com.

• Check your finances. Review your income, including any non-employment income sources the lender may accept, like alimony and child support. Then, calculate your debt-to-income ratio, which is the percent of your monthly income that goes toward debt payments. If your DTI is high, consider paying down other debts before applying.

• Assess the value of your collateral. Check the collateral’s value to get an idea of the loan amount you may qualify for. If you’re using a bank or investment account to secure the loan, review the balance and past statements. To determine the value of your car, use a pricing guide such as Edmunds or Kelley Blue Book.

Secured loans to avoid

Pawn loans: Pawnshops let you hand over valuables in exchange for cash that you must typically pay back within a couple of weeks. Short repayment terms and APRs up to 200% may make these loans difficult to repay. If you fail to repay this loan, the pawnshop will keep your item.