Where to Find Secured Personal Loans

Auto Loans, Loans, Personal Loans
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Where to Find Secured Personal Loans

Most personal loans are unsecured, based solely on your financial history: credit score, income and debts. But if your credit score prevents you from getting an unsecured loan on favorable terms, you may be offered the option of a secured loan.

You can pledge the title to your vehicle, your savings account or some other asset in return for a lower rate or a larger loan amount than you would have qualified for otherwise.

The downside: If you don’t make timely loan payments, the lender can seize your asset, and your credit score will suffer as well. And there are hidden costs to some types of secured loans.

IN THIS ARTICLE

What can you use to secure a personal loan?

Secured loans from banks

Secured loans from credit unions

Secured loans from online lenders

What can you use to secure a personal loan?

You can borrow against your car

The vast majority of secured personal loans use a car as collateral.

  • If you own a paid-off car, you can use an auto equity loan to borrow against its market value. Depending on your credit history and the lender’s payment affordability standards, you may be able to borrow 100% or more of the car’s value.
  • If you still owe money on your car but have substantial equity, you may be able to do a cash-out refinancing of the original loan. Again, depending on the lender’s underwriting standards, you may be able to borrow more than the car’s value. A cash-out refinance means you take a new loan for a higher amount than the original one. The new loan replaces the original and you get to keep the extra cash.

Note: If what you need is just a little more cash in your monthly budget, rather than a large sum borrowed all at once, you could lower your monthly car payment by simply refinancing a high-rate auto loan at a lower rate. This is most likely to work if your credit has improved or interest rates have dropped.

A personal loan secured with a car is different from an auto title loan.

A loan from a reputable lender will carry a maximum annual percentage rate of 36%. The rate, the amount loaned and the length of the loan will be based on both your credit and the value of the car. This is a much cheaper option than car title loans, which have APRs as high as 300%. Car title loans don’t require a credit check; they also don’t build your credit history. Lenders typically will offer 40% of your car’s value or less. NerdWallet strongly recommends you avoid auto title loans.

Think twice before you pledge a car you rely on for any loan. Loans typically span several years, which means your financial situation could change for the worse and you could lose the car you use to get to work. Also, the value of a car can go down quickly over time. Tapping your car’s equity for cash may put you in danger of owing more than it’s worth, says Phil Reed, NerdWallet’s car-buying expert.

A lender that accepts your car as collateral may require that you insure it for physical damage, naming it as loss payee in the event it’s totaled. If you already dropped collision and comprehensive coverage on your paid-off car to save money, the cost of even the cheapest full coverage may add several hundred dollars a year to your budget that isn’t reflected in your loan payments.

You can borrow against your savings

Some lenders will make personal loans to borrowers who have savings accounts or certificates of deposit with them. If so, you’ll be unlikely to have access to that account or CD until you repay the loan.

You might not want to touch your savings account — but it’s cheaper to use that money than to take out a loan against it and pay interest. Just be sure to maintain some kind of emergency fund.

If you have a CD, though, the opposite may be true: It can make more sense to take out a loan against your CD than to pull the money you need directly from it. You’ll pay an early withdrawal penalty if you take money out. Compare that penalty with how much you’d pay in interest on a loan.

You can borrow against other household goods

Some lenders may offer loans secured by recreational vehicles, boats or even household goods such as furniture.

Where to get a secured personal loan

Banks

Of the nation’s five largest banks, only Wells Fargo allows those with savings accounts or CDs to use them as collateral to get a lower interest rate on a loan. Secured loans carry an origination fee of $75, and borrowers cannot touch the money in their account or CD for the duration of the loan.

The chances of qualifying for a loan still depend on a borrower’s credit score, income and other debts, but pledging an account increases the likelihood of qualification significantly, says Jason Vasquez, a spokesman for Wells Fargo.

Wells Fargo said it discontinued its cash-out auto loan refinancing and auto equity loans in 2016.

Wells Fargo logo

Information provided for unsecured loan; secured loan terms may vary.

APR: 5.99% to 23.99% fixed.

Loan amount: $3,000 to $100,000.

Loan terms: One to five years.

Minimum credit score: Not provided, but generally 680 or higher.

Time to funding: Typically same day.

Fees: No origination fee for unsecured loan; $75 for secured loan; $39 late fee and returned payment fee.


Credit unions

Credit unions are a good first stop for most types of loans, because they consider those with poor credit and provide affordable loans.

Many credit unions offer CD-secured loans, typically to build credit or get cash quickly at a lower rate than other types of loans. Here are NerdWallet’s top picks for credit unions this year.

Secured loans from online lenders

Not all online lenders make secured loans, but some do accept a car or other assets as collateral. You can check your rate for an unsecured loan at the following lenders; you may receive an offer to secure your loan once you apply.

Mariner Finance, OneMain Financial, Ascend and Finova Financial are online lenders that lend primarily to those with poor credit. LightStream lends to those with excellent credit. The borrowing experience is very different at each.

OneMain and Springleaf, its parent company, have more than 1,800 branches across the country. More than half of OneMain customers use their car or another asset to qualify for a larger loan amount or get a lower rate. Rates on a secured loan may be between one and 10 percentage points less than the borrower would see on an unsecured loan.

The lender offers both auto equity loans and cash-out refinancing loans. OneMain requires proof of comprehensive and collision car insurance for both kinds of loans. The lender doesn’t accept some types of cars, such as those that carry branded titles or are used commercially, according to its website.

OneMain_RGB

Information provided for unsecured loan; secured loan terms may vary.

APR: 9.99% to 35.99% fixed for auto secured loan; 12.99% to 35.99% for unsecured loan

Loan amount: $1,500 to $25,000.

Loan terms: Three to five years.

Minimum credit score: None.

Time to funding: From same day up to three business days.

Fees: Origination fee and late fees vary by state.

logo-for-nw-mariner-finance

Information provided for unsecured loan; secured loan terms may vary.

APRs: 24% to 36% fixed.

Loan amount: $1,000 to $25,000.

Loan terms: One to five years.

Minimum credit score: 600.

Time to funding: Typically one day.

Fees: Origination fee, late fee, personal check fee and returned payment fee vary by state.

Once the borrower has been approved for a secured loan, the offer depends on the quality of the car, the size of the loan request and the borrower’s ability to afford the monthly payment, says Dave Hogan, executive vice president of OneMain’s decision analytics and marketing division.

Borrowers with very poor credit may be able to use items such as furniture, computers or other household goods to secure their loans. Those loans typically are made to very risky borrowers who would not otherwise qualify for a loan, Hogan says.

Mariner Finance and its affiliate Pioneer Credit Company have both an online application and branches around the country. The company typically makes unsecured loans to those with low credit scores.

Mariner requires borrowers to secure loans of more than $10,000. Borrowers can pledge their cars to qualify as long as they carry comprehensive and collision insurance; the car doesn’t need to be fully paid off. They won’t receive a rate discount for offering collateral, but they may receive a higher loan amount, according to the company.  Mariner offers both cash out refinance loans and auto equity loans.

Ascend rewards people who take steps to improve their credit. The lender has a unique twist on the idea of a secured loan — after you qualify for a loan, you have the option of pledging your car as collateral. Those who do get a flat 20% reduction in their interest payments. The car needs to be fully paid off and insurance is required.

Ascend_logo_orange

Information provided for unsecured loan; secured loan terms may vary.

APR: 27.49% to 35.99% fixed.

Loan amount: $2,000 to $12,500.

Loan terms: 3 years.

Minimum credit score: 580, but average is 630.

Time to funding: 1 to 3 business days.

Fees: Late fee and returned payment fee vary by state.

Limitations: Available only in AL, CA, GA, IL, MO, OR, SC, UT.

LightStream_logo

Information provided for unsecured loan; secured loan terms may vary.

APRs: Start at 3.24% (boat, RV) to 5.49% (credit card and debt consolidation), ranging up to 16.34%.

Loan amount: $5,000 to $100,000.

Loan terms: Two to seven years.

Minimum credit score: 680.

Time to funding: Same day, with option of up to 30 days from approval.

Fees: None.

LightStream is on the opposite end of the lending spectrum. It lends only to those with excellent credit and long credit histories, offering unsecured loans at rates comparable to those on secured loans. LightStream cares more about your credit history than it does about your car; if your credit is just short of its standards, the company may offer you a secured loan.

LightStream doesn’t offer a rate discount or higher loan amount on secured loans, as other lenders do, only the chance to qualify for its low-rate loans.

For secured loans, LightStream will hold the lien to the vehicle, but it does not require car insurance naming it as loss payee, says Todd Nelson, the lender’s director of business development.

“LightStream’s core business is about [underwriting] the individual, not the collateral,” Nelson says.

Finova is an auto equity lender that lends to those who need emergency cash. Its rates are much lower than traditional car title lenders and it allows a repayment period of 12 months. The car needs to be paid off and borrowers are required to prepay 12 months’ worth of comprehensive and collision insurance.

finova_logo

APR: 17% to 30%.

Loan amount: $500 to $5,000.

Loan terms: 12 months.

Minimum credit score: None.

Time to funding: Typically same day.

Fees: $25 credit investigation fee.

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay.