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Does a Secured Loan Provide a Better Interest Rate?

As you shop around for loans, you’ll find two major types: secured loans and unsecured loans. While secured loans are tied to collateral, that is, something of value like your house or car, unsecured loans are not. If you fail to make payments on a secured loan, the lender can seize the pledged collateral. This means secured loans are less risky for lenders and typically can come with lower interest rates than secured loans.

How a secured loan works

You can’t get a secured loan unless you back it with collateral. Examples of collateral include a house, car, boat, cash in a savings account or certificate of deposit, fine art, or jewelry. If you are approved for a secured loan, it will be your responsibility to repay it based on the loan contract terms to make payments, or the lender will likely seize your collateral to recoup some of their losses.

Secured loans vs. unsecured loans

A secured loan requires that your collateral is put on the line. With an unsecured loan, you won’t need any collateral. Lenders often look for good credit to approve an unsecured loan. If you don’t have the best credit score, you may find getting approved for a secured loan easier than an unsecured loan if the collateral you want to pledge is acceptable to the lender.

Why do secured loans have lower rates?

Since a secured loan is considered less risky for a lender, loan rates are typically lower than rates for unsecured loans. If you qualify for a secured loan with a competitive interest rate, you may save a substantial sum of money over the life of the loan. Remember to repay the loan on time, or your lender may seize the collateral. This can be a real problem if your collateral is your house, car, or cash in a savings account.

How to get a secured loan

If you believe you’re a good candidate for a secured loan, follow these steps.

  • Shop around: Not all secured loans are created equal. In fact, there are countless options out there. That’s why it’s in your best interest to shop around and compare rates, terms, and any fees associated with the loan.
  • Apply: Once you decide on a secured loan, it’s time to apply. Fortunately, most lenders offer online applications. Be prepared to share basic personal information like your name, Social Security number, and details about your collateral.
  • Wait for approval: The type of secured loan you take out and the lender you choose will dictate how long you have to wait for a decision. Many lenders offer same-day approvals or will approve you within 24 hours or in a few business days.
  • Get funded: Upon approval, the lender will distribute your funds. If you take out a secured personal loan, you may receive the funds via direct deposit, check, or prepaid card.

The Bottom Line

If you want to land a loan at a low-interest rate but don’t have good credit, a secured loan is likely the way to go. This is particularly true if you know you’ll be able to repay it on time-based on the terms of your contract. Be sure to carefully review all available options before deciding which is best for you.


Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of [publisher] or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites

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