Bad credit can limit your loan options, but collateral can give a lender another reason to approve you. Your car, savings, certificate of deposit, or home equity can secure a loan and may help you qualify for better terms than you’d get without collateral.
Secured loans cover several types of credit. A secured personal loan gives you cash for general expenses, while an auto loan finances a vehicle, a deposit-secured loan lets you borrow against your own money, and a home equity loan or refinance taps your home’s value. The tradeoff is simple: if you default, the lender can claim the asset that secures the debt.
We compared current loan products based on collateral requirements, credit requirements, APRs, fees, loan amounts, access to prequalification, and major restrictions. The eight options below cover the main ways to get a secured loan when your credit history makes other loans harder to get.
Best Secured Personal Loans for Bad Credit
A secured personal loan gives you a lump sum that you can use for many personal expenses. The lender places a lien on an eligible asset, but you keep possession of the asset as long as you follow the loan agreement.
1. Upstart
Upstart can offer an auto-secured option during its standard personal loan application. You need to own the vehicle outright.
2. OneMain Financial
OneMain Financial offers both secured and unsecured personal loans.
Best Savings- and CD-Secured Loans for Bad Credit
Cash-secured loans can be among the least risky options for a lender because the money that secures the debt is already on deposit. They can also be useful when you want access to cash without withdrawing your savings or cashing out a certificate early.
3. Regions Bank
Regions Bank’s Deposit Secured Loan lets you borrow against a Regions savings account, money market account, or certificate of deposit.
4. Navy Federal Credit Union
Navy Federal Credit Union offers savings-secured and certificate-secured loans to eligible members. Neither product requires a credit check.
Best Secured Auto Loans for Bad Credit
A standard auto loan is a secured loan because the vehicle itself backs the debt. These options make the most sense if you need to buy a car or refinance an existing auto loan rather than get cash for an unrelated expense.
5. Auto Credit Express
Auto Credit Express connects car buyers with dealerships and lenders that work with many credit profiles.
6. MyAutoLoan
MyAutoLoan connects borrowers with multiple lenders through one request.
Best Home Equity Loans for Bad or Fair Credit
Your home can secure much larger loan amounts than a car or savings account, but home-backed loans have the highest stakes. The two lenders below also have higher credit score requirements than the other options on this list.
7. Rocket Mortgage
Rocket Mortgage offers cash-out refinancing and home equity loans. Both products let qualified homeowners convert some of their home equity into cash.
8. Bank of America
Bank of America offers a home equity line of credit and cash-out mortgage refinancing. A home equity line of credit works differently from a lump-sum loan because you can draw money from the line as you need it.
How Secured Loans Work With Bad Credit
A secured loan gives the lender a legal claim to an asset if you fail to repay the debt. That added protection can make a lender more willing to approve an application or offer better terms.
Collateral doesn’t erase bad credit. Most lenders still consider your credit score, credit report, income, debt, payment history, and ability to repay. The exception is some fully cash-secured loans, which may not require a credit check at all.
A secured loan can help in several ways, but every benefit comes with a tradeoff.
Benefits of a Secured Loan
Collateral can improve the economics of a loan because it reduces the lender’s potential loss. The exact benefit depends on the lender and the asset.
- Higher approval odds: Some borrowers can qualify with collateral after unsecured lenders turn them down.
- Lower APR: A lender may charge less when an asset secures the debt.
- Higher loan amount: Valuable collateral can support a larger loan.
- More options: Cars, deposits, certificates, and home equity create different loan choices.
Risks of a Secured Loan
The biggest risk is the asset itself. Default can cost you much more than late fees or damage to your credit score.
- Asset loss: The lender may repossess a vehicle, claim pledged deposits, or pursue foreclosure.
- Restricted savings: Cash collateral may stay frozen until you repay part or all of the debt.
- Closing costs: Home-backed loans can carry substantial upfront costs.
- Long repayment periods: A lower monthly payment can hide a higher total cost if the term is much longer.
Types of Collateral You Can Use for a Secured Loan
The asset you own determines which secured loan options are realistic. The four most common forms of collateral are vehicles, savings, certificates of deposit, and home equity.
Your Car
A paid-off car can secure some personal loans. The lender places a lien on the title while you keep possession of the vehicle.
A car can also secure the loan that finances its purchase. Auto refinancing works the same way after the new lender pays off the old auto loan and replaces the existing lien.
Vehicle value, mileage, age, title status, insurance, and existing liens can affect eligibility.
Your Savings
A savings-secured loan lets you borrow against money that you already have on deposit. The lender places a hold on part or all of the pledged amount.
Your money may continue to earn interest or dividends, but you can’t spend the pledged funds until the lender releases them.
This can be useful if you need temporary access to cash but don’t want to drain your savings account.
Your Certificate of Deposit
A certificate-secured loan works much like a savings-secured loan. The certificate remains in place and secures the debt.
This may help you avoid an early withdrawal penalty. The certificate can also continue to earn interest or dividends under the lender’s rules.
Your Home
Homeowners can use a home equity loan, home equity line of credit, or cash-out refinance to borrow against their equity.
These products can support large loan amounts and lower rates, but they also put your home at risk. Closing costs can make them a poor choice for a small cash need.
Secured Personal Loans vs. Car Title Loans
An auto-secured personal loan isn’t the same as a short-term car title loan. Both use a vehicle as collateral, but the repayment terms and costs can be very different.
Mainstream secured personal loans usually have fixed installment payments over months or years. Short-term title loans often have much shorter terms and much higher costs.
A Consumer Financial Protection Bureau study examined about 3.5 million single-payment vehicle title loan records from 2010 through 2013. The study found that one in five borrowers had a vehicle seized. The CFPB also reported that the typical APR for the loans in its study was about 300%.
That research is older, but the risk is still worth recognizing. Compare the APR, repayment schedule, lender rights, and total amount due before you use a car title as collateral.
Where to Get a Secured Loan With Bad Credit
The right lender depends on the collateral you have. Banks, credit unions, online lenders, auto finance companies, and mortgage lenders serve different needs.
Banks
Banks commonly offer auto loans, deposit-secured loans, HELOCs, and mortgage refinances. Existing customers may also qualify for relationship discounts.
A bank can make sense when the asset already sits there. A savings-secured loan is a clear example because the bank already holds the money that secures the debt.
Credit Unions
Credit unions can be especially useful for savings-secured and certificate-secured loans. Some don’t require a credit check when the deposit fully secures the loan.
You need to meet the credit union’s membership requirements. Compare both the loan rate and the interest or dividend rate that your deposit earns.
Online Lenders and Loan Marketplaces
Online lenders can offer secured personal loans, while marketplaces can connect you with several auto lenders through one request.
Check what you’re applying for before you submit your information. A secured personal loan gives you general-purpose cash, while an auto loan finances a vehicle.
Mortgage Lenders
Mortgage lenders can help homeowners borrow against home equity through a home equity loan, HELOC, or cash-out refinance.
These products usually have stricter credit requirements than deposit-secured loans or some vehicle-secured loans. They also take longer to close.
How to Compare Secured Loans for Bad Credit
Getting approved isn’t enough. The loan should also cost less than your alternatives and put no more collateral at risk than necessary.
Compare these factors before you accept an offer:
- APR: Compare the full annual cost rather than the interest rate alone.
- Collateral: Know exactly what property the lender can claim.
- Equity: Check how much value you need in a vehicle or home after existing debt.
- Loan amount: Don’t pledge a high-value asset for more money than you actually need.
- Fees: Check origination fees, closing costs, late fees, annual fees, and appraisal costs.
- Loan term: A longer term usually lowers the payment but increases total interest.
- Net proceeds: Fees can reduce the cash you actually receive.
- Credit check: Look for prequalification with a soft credit inquiry when possible.
- Credit bureau reporting: Confirm whether the lender reports payments to the three major credit bureaus if you want the loan to help your credit history.
- Default terms: Know what must happen before the lender can take the collateral.
How to Get a Secured Loan With Bad Credit
A little preparation can help you avoid unnecessary applications and expensive loan terms. Start with your credit profile and your collateral before you compare lenders.
1. Check Your Credit Score and Credit Report
Review your credit score and credit report before you apply. Collateral can help, but your credit profile still affects most secured loans.
Look for errors on your credit report. Also check recent late payments, collection accounts, and high balances that could hurt your application.
2. Choose the Right Collateral
Decide which asset you’re comfortable putting at risk. The asset should fit the amount you need and the purpose of the loan.
A savings-secured loan may make more sense than a vehicle-secured loan if you have enough cash on deposit. A home-backed loan may make sense for a large expense, but it can be excessive for a small loan.
3. Check Your Equity and Existing Liens
Find out whether another lender already has a claim on the asset. A personal lender may require a car with no existing lien.
For a home, subtract your mortgage balances from the home’s current value. For savings or a certificate of deposit, check how much of the balance the lender will place on hold.
4. Prequalify and Compare Offers
Check potential rates with a soft credit inquiry when the lender offers that option. Compare the APR, loan amount, monthly payment, term, fees, and collateral requirements.
Don’t choose a loan based on the monthly payment alone. A longer term can make the payment look affordable while it adds substantial interest.
5. Read the Final Loan Agreement
Review the final numbers before you sign. Check the APR, amount financed, net proceeds, monthly payment, loan term, fees, and collateral description.
Pay special attention to the default provisions. You should know when the lender can claim the collateral and what rights you have after a missed payment.
When a Secured Loan Can Make Sense
A secured loan works best when the collateral gives you a real financial benefit. The lower cost or better approval terms should justify the added risk.
These situations can make a secured loan worth considering:
- Lower APR: The secured offer costs meaningfully less than your unsecured alternatives.
- Better approval odds: You can’t qualify for affordable unsecured credit.
- Cash on deposit: You can secure the loan without giving up interest or dividends on your savings.
- Auto financing: You need reliable transportation and can afford the payment.
- Home equity: You need a larger amount and the costs make sense for the expense.
When You Shouldn’t Risk Your Collateral
A secured loan doesn’t turn an unaffordable payment into an affordable one. The collateral simply gives the lender another way to collect after default.
These situations should make you think twice:
- Unstable income: Your income doesn’t leave enough room for the payment.
- Essential vehicle: Losing the car would threaten your ability to work or meet basic obligations.
- Limited savings: A hold on your savings would leave you without an emergency fund.
- Home at risk: The expense doesn’t justify putting your primary residence at risk.
- High APR: The loan remains expensive despite the collateral.
- Ongoing cash shortfall: Another loan won’t fix a monthly budget that already runs at a deficit.
Alternatives to a Secured Loan
You don’t have to put an asset at risk if you can qualify for an affordable unsecured option.
An unsecured personal loan may make sense if your income and credit profile support it. Wells Fargo currently offers unsecured personal loans without collateral. Other banks, credit unions, and online lenders offer similar products.
A credit union small-dollar loan can also be worth checking. You could also ask a creditor or medical provider about a payment plan, apply with a qualified co-borrower, or delay a non-urgent expense while you improve your credit profile.
Compare these choices with the secured loan before you commit an asset.
Frequently Asked Questions
Can I use more than one asset as collateral for a secured loan?
Some lenders may accept more than one asset, but many consumer secured loans are built around one specific form of collateral. Ask the lender exactly which assets will secure the debt before you sign.
If several assets secure one loan, default could put each pledged asset at risk.
What happens to the lien after I pay off a secured loan?
The lender should release its lien after you repay the loan in full. The exact process and timing depend on the asset, lender, and state.
Keep your payoff confirmation and make sure the lien has been removed from a vehicle title or other ownership record.
Can I sell the collateral before the secured loan is paid off?
Usually, you need to satisfy the lender’s lien before you can transfer clear ownership. A vehicle sale often requires the loan balance to be paid as part of the transaction.
Contact the lender before you agree to sell an asset that still secures a loan.
Do secured loans require an appraisal?
Some do. Home-backed loans may require a property valuation, while vehicle lenders can estimate value from the VIN, mileage, condition, and market data.
Savings- and certificate-secured loans usually don’t need an appraisal because the lender already knows the value of the deposit.
Can I refinance a secured loan later?
Yes, refinancing may be possible if you qualify for better terms. A higher credit score, lower debt, or more equity can improve your options.
Compare the new APR and fees with the remaining cost of your existing loan before you refinance.
