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Written by
Denny Ceizyk
Denny Ceizyk joined the Bankrate Loans team as a Senior Writer in 2023, providing 30 years of insight from his experience in loan sales and as a personal finance writer to help consumers navigate the lending landscape on their financial journeys.
Edited by
Rhys Subitch
Rhys Subitch is a Bankrate editor who leads an editorial team dedicated to developing educational content about personal loans products for every part of life.
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When you take out a secured loan, you allow a lender to place a lien against something you own in exchange for borrowing money. Your asset gives the lender extra “security” that you’ll repay the loan. If you default on a secured loan, the lender can take your asset and sell it to recoup the unpaid loan balance.
Secured loans are typically easier to qualify for and have lower interest rates because they pose less risk to the lender. Knowing precisely what you are promising and what you stand to lose is important before you take out a secured loan.
Secured loans are debt products backed by an asset that you own. When you apply for a secured loan, the lender will need to know which of your assets you plan to use as collateral.
You can pledge your car, home or boat as collateral for a secured loan, and the lender will place a lien on that asset until the loan is repaid. If you default on the loan, the lender can claim and sell the collateral to recover the loss.
Most secured loans are installment loans, meaning you receive all your funds at once and make equal monthly payments until the loan is paid in full. Interest rates are typically fixed, and repayment terms may be as short as one year for a secured personal loan or as long as 30 years for a mortgage loan.
Secured loans offer many advantages, but they also have some risks.
If you’re trying to decide between a secured versus an unsecured loan, it’s helpful to understand how each works. Choosing one or the other often comes down to how much you need to borrow, what you need the money for, how quickly you need it and whether you meet the qualifying requirements.
| A secured loan is best if: | An unsecured loan is best if: |
|---|---|
| You want lower rates or a lower payment spread over a longer time period. | You need funds quickly with a simple approval process. |
| You’re not in a rush to get funds. | You don’t have an asset to secure the loan with. |
| You’re buying a home, car or other major purchase and need to borrow a large amount of money. | You don’t want to touch the equity in your home or prefer not to borrow against an asset. |
You may be able to get a secured loan using any asset with sufficient, verifiable value that you can prove you own, assuming you meet the lender’s eligibility requirements. Most secured loans fall under the following five categories:
What you use as collateral likely will depend on whether your loan is for personal or business use. Some examples of collateral include:
After you miss payments on a secured loan, the lender can begin the process of repossessing the asset attached to the loan. It can take several months, and the lender may offer various options to help you if you have financial problems.
If you lose an asset due to repossession or foreclosure, you may still owe money on the debt if the repossessed asset doesn’t sell for enough to cover the amount of your loan. Depending on your state, a lender can sue you in court for a deficiency judgment, creating a public record that stays on your credit report for seven years.
Houses, land and business assets typically take longer to sell, which may give you more time to find a way to get caught up on your payments. Some states require a lender to go to court to foreclose on a property, which can take upward of a year. In other states, the lender must provide you with advance notice of foreclosure, but it can take as little as two months and is settled out of court.
If you’re having difficulty repaying a secured loan, there are a few steps you can take.
The process of applying for a secured loan will vary depending on what type of secured loan you need. Mortgage loans are the most involved, requiring a deeper dive into your employment history, assets, credit history and the value of the home you’re buying or refinancing.
Car, boat and RV loans require less paperwork, and can often be approved relatively quickly. Secured personal loans work similarly to vehicle loans and require that you prove the value and ownership history of the asset you’re using as collateral for the loan. There are typically five steps involved in applying for a secured loan.
A secured loan can be a cost-effective financing option if you buy a high-value asset, like a car or home. Carefully research and compare options before applying for a secured loan so you understand the benefits and potential consequences. When deciding between a secured and unsecured loan, consider your needs, the amount you need to borrow and your ability to meet qualifying requirements.
Denny Ceizyk joined the Bankrate Loans team as a Senior Writer in 2023, providing 30 years of insight from his experience in loan sales and as a personal finance writer to help consumers navigate the lending landscape on their financial journeys.
