Secured personal loans are loan options that require you to provide an asset you own as collateral. This collateral can make it easier to qualify with a lower credit score, and give you access to larger loan amounts and lower interest rates. There are several types of secured personal loans to choose from. Some require specific types of collateral, like your vehicle, while others are more flexible. Let’s dive deeper into four different options you have for getting a personal loan with collateral so you can choose the right option for your preferences and needs.
1. Title loan
Title loans are secured loans that let you use your car title as collateral if you own the vehicle outright. Title lenders will first appraise your car to estimate how much it’s worth, then offer you a loan equal to 25 to 50% of its value.
If you are approved and accept the terms, you can get your loan funds as quickly as that same day. As a result, title loans can be great tools for borrowing money quickly. Better yet, you can keep driving your car as you repay the loan.
Homes are some of the most expensive items you can buy. That’s what a mortgage loan is for. These types of loans are used specifically to buy homes. With mortgages, the lender uses your home as collateral on the loan by placing a lien on it. Then, you repay the loan in fixed monthly installments of principal and interest. Mortgages can last 10 to 30 years, but the most common is the 30-year mortgage.
3. Auto loan
Vehicles are another type of expensive purchase many people finance. This is what auto loans are used for. When you buy a car with an auto loan, the vehicle you purchase becomes the loan’s collateral. You then get to pay this loan back over time, often over 5 to 7 years.
4. Pawn shop loan
A pawn shop loan lets you borrow money from a pawn shop using nearly any valuable item as collateral, like jewelry, musical instruments, artwork, or even vehicles. To get a pawn shop loan, you’ll bring the item to the pawn lender for appraisal. Once they appraise the item, they’ll offer a loan amount and terms. There are no credit checks involved, and these loans generally last 30 days.
If you accept the terms, you can leave your item with the pawn, and they’ll give you a claim ticket along with your loan. To get your item back, you’ll repay the loan plus interest and exchange your claim ticket for your item. Failing to repay the loan will cause you to lose your item to the pawn shop, but there is no credit damage or collections to worry about.
The bottom line
Using collateral can help you get a lower rate and larger loan amount for a personal loan. Plus, you have plenty of options depending on what you’re willing to put down as collateral. For instance, auto loans use your new vehicle as collateral when you purchase it, whereas title loans use the car’s title after you’ve paid it off. With mortgages, you’ll provide your home as collateral when you purchase it. And pawn shop loans let you use almost any item of value as your collateral.
Consider your financial situation and what items you’re willing to risk as collateral before settling on a type of secured personal loan. This can help you find the right option for your unique needs.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.