Secured Loans Explained
A secured loan is any loan backed by collateral - an asset the lender can claim if you default. This lower risk to the lender translates to lower interest rates for borrowers. Here is every major type of secured loan, with typical rates and requirements.
Mortgage
Collateral
Primary residence
Rate
5.5-7.5% (30-yr fixed)
Amount
$100,000 - $3,000,000+
Term
10-30 years
Used to purchase or refinance a home. The home serves as collateral. The most common form of secured borrowing in the US, offering the lowest rates of any loan type.
Home Equity Loan
Collateral
Home equity
Rate
7.0-10.0%
Amount
$10,000 - $500,000
Term
5-20 years
Borrow against your home equity in a lump sum at a fixed rate. Interest may be tax-deductible if used for home improvements. Sometimes called a second mortgage.
HELOC
Collateral
Home equity
Rate
7.5-11.0% variable
Amount
$10,000 - $500,000
Term
10-year draw, 20-year repay
A revolving line of credit secured by your home. Draw funds as needed during the draw period. Variable rate typically tied to the prime rate. Flexible for ongoing expenses.
Auto Loan
Collateral
Vehicle
Rate
4.5-8.5%
Amount
$5,000 - $150,000
Term
2-7 years
Finances a vehicle purchase. The vehicle itself is collateral. New car rates are lower than used car rates. Available through banks, credit unions, and dealerships.
Secured Personal Loan
Collateral
Savings account, CD, or investments
Rate
3.0-8.0%
Amount
$1,000 - $50,000
Term
1-5 years
Uses a savings account or CD as collateral. The deposit is typically frozen for the loan term. Excellent for building credit while accessing cash at a low rate.
Title Loan
Collateral
Paid-off vehicle
Rate
25-300% APR (predatory)
Amount
$200 - $10,000
Term
1-3 months
Uses your car title as collateral. Extremely high rates. Should be avoided in most circumstances. Used as a last resort by borrowers with no other options.
How to qualify for a secured loan
Have qualifying collateral
The asset must be owned by you, assessed by the lender, and of sufficient value to cover the loan amount.
Meet credit requirements
Most secured lenders require a credit score of 580-620+. Lower scores are more acceptable than for unsecured loans.
Demonstrate repayment ability
Lenders check debt-to-income ratio. Aim for under 43%. Include all existing debts when calculating.
Provide documentation
Asset ownership documents, income proof (pay stubs, tax returns), and bank statements are typically required.