How Secured Loans Help Build Credit

by Julia Guardione Updated on: May 23, 2019

A secured loan is money that you borrow from a financial institution that is secured against an asset that you own or money that you place on hold. These loans are great for people who want to build or repair their credit because they do not require credit history and they have lower interest rates.

If you are securing your savings account, you are able to build credit with an amount of money that you have already saved. Some institutions may require a minimum balance in order to fund a loan, but most of them have low minimum requirements, making this type of loan possible for many Americans.

What is an unsecured loan?

An unsecured loan is money borrowed from a bank or lender where you agree to make payments until the loan is paid in full. Because the loan isn’t secured on your home or car, the interest rates are usually higher. Missing payments could lead to late fees and negative history reported to the credit bureau.

Securing assets

Generally, you can secure a home or car can be used to secure a loan. If you are interested in either of these options, you will want to ensure you own the asset you would like to use. You can talk to your financial institution regarding their specific requirements.

What happens if you don’t make payments?

If you decide to secure your home or car for a secured loan, you run the risk of having a foreclosure or repossessed car if a payment is missed. Therefore, you will want to ensure that you are able to make the payments as required prior to taking out the loan.

How these improve credit score and history

Over time, a secured loan helps to establish a positive credit history. If you have little, no, or derogatory credit, talk to your financial institution to find the best loan for you. If a secured credit card is available, your credit purchasing amount will increase as you make payments. Be sure to ask about any additional fees to have these accounts.

Have you tried a secured loan? Share your experience with us.

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About The Author


Julia Guardione

Julia Guardione is RateGenius’ auto refinance expert. She is a graduate of Texas State University and a lover of all things outdoors. She lives in Austin, Texas with her dog and cat. She’s always open to new ideas, so if you have any suggestions or questions, email her at pr@rategenius.com.


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