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What are Secured Personal Loans?

Jun 4, 2008
Unsecured personal loans are a great way to get money in a pinch - but they just aren't available to everyone. People with poor credit history or bankruptcy filings in their past are unlikely to be approved for an unsecured personal loan. However, even if you've had trouble getting a personal loan in the past, you're likely to qualify for a bad credit secured loan. Bad credit secured loans work much the same as an unsecured personal loan, with one caveat - your loan is secured by an actual piece of property; some sort of collateral. This collateral gives the bank the piece of mind that if you should stop making your payments, they can likely recover the money you owe them. Because this makes the loan less risky for the bank, in some situations you can get a lower interest rate on a secured personal loan than you can on a more traditional, unsecured personal loan.

The collateral used for a secured personal loan can be anything of value - that is, more value than the amount you intend to borrow. Cars and real estate are often used in these types of secured loans, but other merchandise can be used - valuables like jewelry, antiques, or collectables. You simply sign your property over to the lender, and continue on your way - in most cases, the lender isn't required to actually take possession of the item in question, and they'll likely never do so unless you default on the loan. If you do default on the loan, you are legally giving up your right to the item used as collateral, and the lender is free to take it and sell it to recover their investment.

In the past, traditional banks didn't often deal in secured personal loans, but many have grown to understand the strong market for such lending. Large institutions such as Wells Fargo and Wachovia Bank both now have secured personal loan programs, and in most cases even offer a lower interest rate for a secured personal loan as compared to an unsecured personal loan. Most loan terms range from 3-10 years, but certain situations warrant special considerations.

Even pawn shops deal in very short term secured personal loans, taking possession of items like jewelry or electronic equipment for short periods of time, while lending a borrower an amount based on the value of the collateral. These types of loans generally deal in much shorter terms, to the tune of 30-60 days. Fees on these types of loans, however, are generally high, but pawn shop lenders are generally much more lenient about the type of collateral used, making this type of secured loan a good choice in some situations.

Whatever your situation, a secured personal loan can be a good choice given the right circumstances. There are numerous websites more than happy to give you quotes on a secured personal loan, and a flip through the local phonebook is also likely to yield good results. With a little homework, its easy to make an informed, intelligent decision.
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Mike discusses bad credit secured loans and other financial issues like
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