Secured Personal Loans: Defined and Explained

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Secured Personal Loans Defined
How Does a Secured Personal Loan Work?
What Can Be Used as Collateral for a Secured Personal Loan?
Your Vehicle
Expect to be asked to show proof of ownership of the vehicle and the vehicle’s value. You also may have to verify that the vehicle has appropriate insurance coverage in case it becomes damaged while you’re paying off the loan. Equity is the difference between the current market value of the vehicle (not what you paid for it) and what you still owe. So, for example, if you owe $1,500 on a car that’s valued at $10,000, you have $8,500 in positive equity. You may be able to borrow that amount, even if you’re still making payments. If you default on a secured personal loan, you could lose the vehicle you’re using as collateral.
Your Savings
Investments
Life Insurance
Precious Metals, Art, or Jewelry
Pros and Cons of Secured Personal Loans
Pros
Less risk for lenders may make it easier for applicants to be approved. Lenders may offer lower APR than on an unsecured loan. There is a potential for a larger loan amount than with an unsecured loan. May be a good option for borrowers who are building their credit.
Cons
More risk for borrower (potential loss of collateral). Loan applications may take longer to process. Lenders may require assets to be insured or have additional insurance. There may be fewer lending options than for unsecured loans.
Some Secured Personal Loan Lenders
What Can Happen If You Default on a Personal Loan?
Secured Personal Loan Alternatives
Unsecured Personal Loan
Credit Cards
Family or Friend Loan
Finding a Cosigner
The Takeaway
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About the Author
Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.
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