Find a secured or unsecured personal loan you need with the best rates and terms available for your credit situation.
Learn more about why these loans are lower risk for a consumer.
See how loans can be made without having to go through a financial institution.
A secured or conventional loan is usually riskier to have, but comes with a lower interest rate.
Learn why these types of loans should only be used in the event of an emergency.
What Is A Secured Loan?
For many of us, the term secured loan might seem unfamiliar, but it's actually very common. A secured loan uses an owned asset to "back" the loan - like your car or a house. This is called collateral. This collateral-backed or secured loan usually has a lower interest rate because of the asset offered. However, secured loans usually carry a higher risk to the borrower for the same reason. If you're unable to repay the loan, the lender can take legal steps to seize ownership of your collateral as a way to recoup the loss.
Secured personal loans offer several benefits, one of which is that they are generally easier to get thanks to the use of assets as collateral. For someone with poor or bad credit, a secured loan may be the better option when it comes to borrowing money.
For example, if you use a home that you own as the collateral on a secured loan, and something unexpected occurred, so you were unable to pay back the money owed, the creditor could then sell your house to get back some or all of the money owed them.
While this sounds like a worst-case scenario, it was a very real situation for millions of homeowners caught in the housing and financial crisis of 2008.
The risk is that the possibility of losing your property, whether it's a that car you own free and clear, or a home that you've worked so hard to purchase, is high. That's why you must be very careful when considering a secured loan, especially if there's a chance that you might not be able to repay the loan.
Here are some examples of various secured personal loans available in the market today.
Types of Secured Personal Loans
- Mortgage Loans: This is a real estate backed loan. The real estate can be properties such as a home, condominium, or apartment. The property that you purchase with the money is held as the collateral for the loan. There are a number of different types of mortgage loans as well.
- Home Equity Loan: This is also referred to as a Home Equity Line of Credit (HELOC). These loans base the value of the loan on the value of your home. Using a professional appraiser, the loan amount is calculated using the house's current appraised value, less what is owed on the mortgage. Usually, the lender will not offer a loan for the full amount of equity available, as they will want to leave a cushion in case home values depreciate.
- Cash-Out Refinance: This type of loan replaces your existing mortgage. A cash-out refinance is another secured loan that pays off the balance on the mortgage. It allows you to use the equity in your house (the amount of your home’s worth above the amount of your current mortgage balance) to obtain funds for other uses.
- Car Loans (Indirect or Direct): If you're in need of a loan to buy a new or used car, you will often get that loan by using that vehicle to secure the loan. This is an auto loan or car loan. There are actually two types of auto loans. One is a direct loan, where the bank gives you the money directly and then you pay the dealership, and the other is an indirect car loan or dealership financing, where the dealership acts as a go-between for you and the lender. We have the top five things you should know about auto loans here.
- Car Title Loans: For this form of secured loan, you use your existing vehicle title as the collateral for a loan. In most cases, you must own the vehicle free and clear. The loan is obtained by allowing a lender to place a lien (a legal claim) on the title. Additionally, you will have to give up the actual title itself for the loan money (these are sometimes still referred to as "pink slip" loans as years ago some certificates of title were pink in color).
- Passbook Loans: A passbook loan is a loan made using either a Certificate of Deposit (CD) or your savings account in order to secure the loan. Not every lender has this option available and not every lender offers passbook loans at a fixed rate and term.
In general, many people find that a secured loan is easier to obtain and has a lower, more affordable interest rate. In addition, depending on their credit situation some people find that a secured loan is the only way a lender will take a chance on them. However, using your car or your house as the collateral needed for a secured loan might seem like too large a risk. Missed payments could lead to your main source of transportation being repossessed or in your home being foreclosed on. Alternate personal loan types — like unsecured personal loans, peer-to-peer loans, and even short-term loans — have grown increasingly popular for people who don't want to put their hard-earned assets at risk and who have the credit history needed to qualify for those products.
Should I Get An Unsecured or A Secured Loan?
Whether or not an unsecured personal loan or a secured personal loan is right for you depends on the level of risk you're prepared to take on, as well as your financial situation. Not everyone is willing or able to use their home or automobile as a way to get the loan they need.
AmOne is here to help answer your questions on what type of personal loan solution is right for your situation. You can either fill out our simple personal loan form or call us toll free at 1-800-781-5187 to speak with a financial search specialist. We're available Monday through Friday from 9:00 AM to 9:00 PM and on Saturday from 9:00 AM to 5:00 PM Eastern time. AmOne's service is free and you are under no obligation.