Should you put up collateral for a personal loan?
Summary
It can cut your rate a lot, but only if you can live with the risk. A secured loan is backed by something you own, such as your car or your savings, and if you default the lender may take it. At Navy Federal Credit Union, a loan secured by savings is priced at the share rate plus 2.00%, while its unsecured personal loans run from 8.74% to 18.00% APR.
What lenders will take as collateral
Most personal loans are unsecured, and Upgrade advertises "no collateral required." Its FAQ adds that some applicants may be offered a choice between an unsecured loan and securing the loan with their car. Homeowners may even be able to pledge built-in fixtures like ceiling fans, cabinets, and light fixtures. Upgrade's own summary of the trade-off: unsecured loans don't require collateral "but typically have higher interest rates than secured loans."
Credit unions tend to offer a different version, where the collateral is money you already have on deposit.
One lender, three prices
Navy Federal publishes rates for all three of these products, which makes it a clean comparison:
| Loan | How the APR is set | Term |
|---|---|---|
| Savings Secured Loan | Share rate + 2.00% | Up to 60 months |
| Savings Secured Loan | Share rate + 3.00% | 61 to 180 months |
| Certificate Secured Loan | Certificate rate + 2.00% | Up to 60 months |
| Unsecured personal loan | 8.74% to 18.00% | Up to 36 months |
| Unsecured personal loan | 10.69% to 18.00% | 37 to 60 months |
Navy Federal's example: $3,000 at 2.25% APR for 36 months comes to $86 a month. The savings-secured loan requires no credit check, and the pledged savings keep earning dividends. With a certificate, you can borrow up to 100% of the principal without paying the early withdrawal penalty.
The 18.00% cap on the unsecured side isn't arbitrary. The Federal Credit Union Act generally limits federal credit unions to 15%, and the NCUA board has used its authority to set a temporary 18% ceiling, currently extended through September 10, 2027. Online lenders outside that system go much higher; Upgrade's unsecured APRs reach 35.99%.
Where collateral shows up in the paperwork
Regulation Z requires the lender to disclose, before you sign, that it has or will acquire a security interest in the property you are buying or in other property identified by item or type. A secured loan can also carry its own fee. The CFPB lists "non-filing insurance, if your loan is secured by collateral" among the common fees on personal installment loans. The article on reading a final offer walks through the rest of that disclosure.
What you stand to lose
Upgrade puts it in one line: if you default, the collateral you offered may be taken. For a car loan that means the car. Late fees, collection calls, and damage to your credit happen whether or not the loan is secured, as the article on missed payments explains.
Pledging the house itself moves you out of personal loans altogether and into home equity borrowing. The HELOC comparison covers what that changes.
Sources
- Upgrade, upgrade.com/personal-loans
- Navy Federal Credit Union, navyfederal.org/loans-cards/personal-loans.html
- NCUA, ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/permissib…
- eCFR, ecfr.gov/current/title-12/chapter-X/part-1026/subpart-C/section-1026.18
- CFPB, consumerfinance.gov/ask-cfpb/do-personal-installment-loans-have-fees-en-2120
Written by Kaz (pen name). Figures are copied from providers' published pricing pages on the dates shown. We have not used these products. Corrections: contact form.