Home > What Is a Secured Personal Loan? - OUCU Financial

What Is a Secured Personal Loan?


Maybe you're thinking: I know what a personal loan is, but what is a secured personal loan? Luckily, the answer is simple. The secured part means your lender uses your savings or certificate funds as collateral for your loan.

A secured personal loan is a convenient way to borrow money for any purpose you like—plus build your credit history. Read on to find out more.

How Does a Secured Personal Loan Work?

A secured personal loan is a type of installment loan, which means you pay back the amount you borrow in equal amounts every month until it's all paid off. 

The difference between this and an unsecured loan is that your lender uses money in your share savings account or share certificate account to secure your loan. The amount of cash you provide as collateral might affect how much money you can borrow.  

When applying for your secured personal loan, you and your lender will agree on:

  • Your loan amount (or principal). This might be between $1000 and $25,000.
  • The term (how long you have to pay it back). This could be up to 60 months.
  • The rates you'll pay. These might be fixed or variable and will depend on changes in the market.

When your loan is approved, this is what will likely happen:

  • You'll receive the funds in your checking account to use however you like. 

  • You'll pay the loan back in equal installments each month. 

  • It will likely take about six months for your timely loan repayments to start building your credit score. 

If you fail to make payments on your loan, this is what could happen:

  • You may have to pay late fees and possibly interest penalties. 

  • Your credit score will likely take a hit. 

  • Your lender can seize the funds you put up as collateral and you probably won't get them back.

The great news is, once you've paid off your secured personal loan, you will have proved your creditworthiness. This means you may be able to qualify for other types of financing. 

Typical Interest Rates for a Secured Personal Loan

Interest rates for a secured personal loan are often more competitive and affordable than for an unsecured personal loan—because your savings funds prove you're a lower risk to your lender.

The interest you pay might be determined by these two figures:

  • The annual percentage yield (APY) rate you would be getting for the funds in your share savings or share certificate account. 

  • Plus, an annual percentage rate (APR) for your secured personal loan, which is decided by your lender. The APR includes interest and any other costs rolled into one, so you shouldn't get any surprises.

These combined figures will be added to your principal monthly payment so you'll always know exactly what's due every month. That way, you can easily manage your budget and stay on track to building a great credit score.  

Why You Might Want a Secured Personal Loan 

There are always moments in life when you need extra cash and a secured personal loan is a great way to access quick funds for any purpose while building credit. 

A secured personal loan could be right for you if:

  • You're at the beginning of your credit journey and want to lay the foundations for a great financial history. 

  • You missed a few payments on a credit card, or a utility bill got sent to collection, and you need to turn your bad credit around.  

All you have to do is make timely monthly payments on your secured personal loan, and you'll soon be able to establish your credit history from scratch—or get your credit back on track. 

In addition, you can use your secured personal loan to:

  • Pay medical bills

  • Cover your house and car repairs

  • Help with education expenses

  • Take a weekend trip 

  • Meet any other unexpected expenses

  • Splurge on any other self-care luxuries  

After you've paid off your personal secured loan, your credit score should have improved. 

Eventually, you'll be able to get financing for the next important steps in life, whether that's a car, a house, a dream vacation, college, or anything else you need and want.  

Still Wondering, What Is a Secured Personal Loan?

If you're still not sure about how a secured loan works -- and whether it's the right choice for you—you could try reaching out to a financial advisor at your local credit union. 

They'll be able to tell you how much money you need to secure your loan, how much money you might be able to borrow, and what term would be best for you.

Alternatively, if you think you're ready to hit the apply button, read below to find out what steps to take to secure your personal financing. 

How To Get A Personal Loan - Step-By-Step Guide

« Return to "Blog" Go to main navigation