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If you have an item of value, like a savings account or car, you can put that item up as collateral, making it easier to get a personal loan. This type of transaction is called a "secured loan," because the collateral literally secures the loan. Collateral can secure all types of loans, including bad credit loans. In this article we will cover how to get a personal loan using collateral, discuss the advantages and disadvantages of using collateral to secure a loan, and help you decide what works best for you.
If your goal is to get a personal loan with collateral, these are the steps to take:
Consider what can be used as collateral on a personal loan by thinking about items of value that can be professionally appraised. For example:
As long as the value of the collateral in question is high enough to protect the lender against loss, it is eligible to be used as collateral.
While a loan can provide quick funds, it's also a risk -- the lender can repossess and sell your collateral if you miss payments. As you would with any significant financial decision, take your time and consider how much risk you're willing to take.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
Lender | APR Range | Loan Amount | Min. Credit Score | Next Steps |
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Apply Now for Discover Personal Loan
Powered by Credible
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
7.99% - 24.99%
|
$2,500 - $40,000
|
660
|
Apply Now for Discover Personal Loan
Powered by Credible |
Rating image, 4.0 out of 5 stars.
4.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
7.80% - 35.99%
|
$1,000 - $50,000
|
None
|
|
Apply Now for Best Egg
Powered by Credible
Rating image, 4.0 out of 5 stars.
4.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
8.99% - 35.99%
|
$2,000 - $50,000
|
550
|
Apply Now for Best Egg
Powered by Credible |
There are two types of personal loans: secured loans and unsecured loans. If you use collateral to get a loan, you're taking out a secured loan. We'll go into more depth on secured loans below.
A secured loan is a loan that you get with collateral.
You apply for a secured loan almost the same way you apply for a regular personal loan. And you can use the money from the loan for whatever you want, just like other personal loans. The main difference with a secured loan is what happens if you don't pay your loan.
With a regular loan, the lender can sue you if you don't pay -- but they can't take anything you own. With a secured loan, you agree to give the lender something specific (like your car or your retirement account) if you can't pay back the loan.
If you're looking at getting a loan for bad credit, a secured loan may be your best option. It's easier to get approved for a secured loan than an unsecured loan. Secured loans are also a helpful option if you need to get a loan with no credit.
Ready to get a loan with collateral? Make sure you compare several personal loan lenders before making a decision.
One of the best ways to compare lenders is to get pre-qualified for a personal loan. This shouldn't impact your credit (ask your lender to double-check). Getting pre-qualified isn't a commitment to borrow from a specific lender. It's just an opportunity to get a more personalized loan offer from a lender, based on your unique financial history.
Whether you're establishing or rebuilding credit, a secured personal loan can be an effective way to create a positive credit history.
The upside of a personal loan is that you can get a loan even if you have poor credit, a thin credit history, or some other issue standing between you and easy loan approval. A secured loan is also beneficial because you pay a lower loan interest rate than you would pay on an unsecured personal loan.
The downside is that you risk your collateral. Remember, the lender has a legal right to take possession of the collateral and sell it if you don't make payments as agreed.
Whether you take that risk is a personal decision. Only you know how easy (or challenging) it will be to make payments. You are the only one who can decide how important getting a personal loan is to you.
We've run the numbers and read through the fine print to find the loan options with competitive rates and low-to-no origination fees. Learn more about our top picks by clicking below.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.