Secured Loans: Risks and Benefits

Is a secured loan a good option for you? This is something you’ll need to carefully consider before making the decision. When you take out a secured loan, you’ll need to put up an asset as collateral for the loan, such as your vehicle or home. When you miss payments, you risk losing ownership of your collateral.

There are a few different types of secured loans; Below, we’ve listed the most common:

  • Car Loans - When you take out a car loan, it’s considered secured because your car acts as collateral. When you don’t make payments, your car can be repossessed to satisfy the loan.
  • Title Loans - When you own a car outright, you can use it as collateral to secure a cash loan. In this situation, the car can be repossessed as well.
  • Home Loans - With home loans, your home acts as collateral, Missed payments can equal foreclosure and repossession of your home.
  • Secured Credit Cards - With secured credit cards, you can place a deposit down in order to secure a line of credit through a bank or financial institution.

But are these types of loans a good choice for you? Let’s take a look at some of the positives and negatives that you can experience with secured loans.


  • When you have a spotty credit history, you can use secured loans to begin building your scores back up again.
  • Secured loans often offer lower interest rates due to the lowered risk with collateral.
  • You have less of a chance of getting denied for a loan when it’s secured by collateral.


  • When you can’t meet your payments, you run the risk of losing your collateral.
  • You can incur higher interest payments when you take out a secured loan such as a title loan.
  • When taking on more debt, you can more easily default on your loan.
  • As with any type of loan, it’s imperative that you run the numbers within your budget and ensure you can meet repayment terms of the loan before agreeing; This is especially important when you have important collateral, like your home or car, on the line. Aside from the positives and negatives listed above, you should also consider the following before you jump into a new loan:

    • How high will the new loan raise your debt-to-income ratio? When you have a high amount of debt in correlation to how much income you make, it can make it tougher to obtain new loans; Creditors can begin to see you as a risk.
    • How well will the monthly repayment amounts fit into your current budget? It’s important to take a look at how much you spend each month vs. how much money you’re making. There’s a possibility that new loan you’re considering will be impossible to pay as needed within your current budget constraints.
    • Is there any way around taking out a new loan? If the loan you’re considering taking out isn’t immediately urgent, consider taking more time to save towards your new finance or purchase first.
    • Have you considered unsecured options? You may qualify for an unsecured loan and not have to put up any assets as collateral. Of course, be sure to compare APR finance charges between secured and unsecured loan options, as well. You still may save more money by way of taking out a secured loan.
    • How necessary is the new loan to your financial situation? Sometimes, seeking alternative solutions like credit counseling, refinancing, or increasing your income can solve many problems without having to take on more debt. Cutting back on your monthly spending costs can also be helpful in freeing up more money to put towards financial requirements, savings, and goals.

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