How to Compare Secured Personal Loans

Loan borrowers should shop around for the best rates and terms.

Secured personal loans are loans made by lenders only if the borrower is willing to put up collateral like a title to a car, a piece of valuable jewelry or a personal check. Secured personal loans tend to be used by people with poor credit ratings, so the interest rates are often very high. There are three kinds of lenders that offer secured personal loans - title loan companies, pawn shops, and cash advance or check-cashing stores.

Instructions

Comparing secured personal loans

1. Compare the amount the lenders are willing to loan to you. For example, one pawn shop might offer you a $100 maximum loan and another might offer you $140, depending on how they value the property you provide as collateral.

2. Compare the interest rates offered by each lender. Obviously a lower interest rate is preferable, but this is not the only consideration in getting a loan. Almost all states now have laws capping the amount of interest that can be charged on a secured personal loan, but in some states the cap is 25% monthly with interest compounded daily/weekly, which can work out to as much as a 300% APR.

3. Compare the specific terms of the loan. The terms of the loan include the duration of the loan and the specifics of the repayment (i.e. weekly, monthly, or lump sum). Also make sure to inquire about penalties for late payments, and compare and consider them in your overall decision.

Tips & Warnings

• 1. Always go to your bank or credit union first if you are going to use your car for collateral on a secured personal loan. They will often approve your loan even if your credit is poor, and the interest rate and terms you get from your bank/credit union are almost certain to be much better than what you will be offered at a title loan company.

• 2. You can often get a little more cash for an item at a pawn shop if you are willing to sell it to them instead of getting a loan on it. That way they can resell the item immediately and do not have costs of holding it in inventory.

• Secured loans are almost always offered at relatively high interest rates. It is in your best interest to borrow as little as possible and make sure to keep up with the payments, as late penalties are often very severe.

References

• Financial Web
• Well Fargo