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A Guide to Secured Loans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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In this guide, we’ll talk about several different secured loans, and the pros and cons of each so you know exactly what to expect before you borrow.

Part I: Secured Loans 101

A secured loan is backed by an asset that you own outright, like a paid-off vehicle or the equity in your home. You put up that property as collateral, and a lender uses that collateral as assurance that they’ll get their money back if you don’t pay. In some cases, secured loans can be allotted for any purpose the borrower chooses.

Home equity loans (HELs) and home equity lines of credit (HELOCs), for example, use the equity a borrower already has in his or her home as collateral. These loans might go toward home improvements and repairs, but consumers also use them to pay for education or debt consolidation.

Each lender has different requirements for the type of collateral they will accept, though it’s most often some form of tangible property with substantial value: a home, car or boat, for example. Auto title loans allow you to put up your vehicle title, and payday lenders take future income — hence the term “payday” — and sometimes even small home appliances as collateral. If you are applying for a secured credit card, your own cash is used as collateral. You can even use a savings or investment account to secure a loan.

For some secured loans, like high-fee payday or title loans, the barrier to entry is very low. Lenders may not require a credit check, and you can walk out with cash in just a few minutes. These usually fall under the category of predatory loans, and although they are easy to obtain and have short loan terms, they are difficult to pay back and escape.

For home and auto loans, borrowers usually have to demonstrate a minimum level of creditworthiness. Secured credit cards are a unique type of secured loan in that they don’t usually require a good credit history and instead are used primarily to build or repair credit on a low-limit card.

The different types of secured loans

Secured card

A secured credit card is often used to build credit, either for consumers who don’t have a history, or those who are trying to recover from dings like bankruptcy or accounts sent to collections.

To obtain a secured card, the borrower must put down a minimum deposit as collateral. The line of credit available for use is usually equal to the deposit amount, though in some cases it can be higher.

The borrower can use their secured card just like a normal credit card — and in order to build credit and avoid interest, he or she should manage the balance and payments responsibly. Minimum deposits for secured cards range widely from $49 to $750, and some carry annual fees up to $50 or more.

HEL/HELOC

With a home equity loan or home equity line of credit, the borrower puts up the equity in his home as collateral — essentially, this means borrowing against the amount your home is worth minus your current mortgage balance.

HELs, like a traditional installment loan, are made in a set dollar amount with fixed payments over the life of the loan.

HELOCs, on the other hand, operate like credit cards. The borrower is approved for a dollar amount that he can draw against and pay off with a variable interest rate. These loans are often spent on home repairs but can be used for other major expenses like education, weddings, debt consolidation or in case of emergency.

In some cases, borrowers carry a zero balance for most of the life of their HELOC but feel secure knowing it’s available if the need arises. If the borrower defaults on a HEL or HELOC, the lender has the right to repossess and sell the home.

Payday loan

Payday loans are a form of lending in which a cash-strapped borrower receives cash with the promise of repaying the loan plus a fee on their next payday.

In this case, a postdated check for the total of the loan amount and fees or authorization to access the funds in your bank or prepaid account serves as collateral for the loan.

These small-dollar loans usually run on two- or four-week terms and although they are often for $500 or less, they carry an average 391% APR. This often traps borrowers in a debt cycle. According to recent research from the Pew Charitable Trusts, 12 million Americans take out these loans every year and spend $9 billion on fees alone.

Title loan

Title loans require the borrower to turn over their car title in exchange for fast cash.

Most lenders don’t require a credit check, and though terms and requirements vary widely, these loans come with hefty fees and interest rates. If the borrower fails to pay back the loan, he or she can either take out another loan with additional fees, or risk having the lender repossess the car.

The Consumer Financial Protection Bureau found that between 2010 and 2013, 20% of borrowers had their vehicles seized by lenders, and more than half of borrowers took out four or more consecutive loans to repay their initial amount.

Mortgage

A mortgage is used to purchase a home, which in turn serves as the collateral to secure the loan. Unlike some other types of secured loans, existing — and healthy — credit is important for securing a mortgage.

If you have poor credit, you’ll see higher interest rates and monthly payments, which means you could owe tens of thousands of dollars more over time than if you had a higher score. Lenders also consider your debt-to-income ratio, the size of your down payment, employment history and the size of the loan. If you fail to make mortgage payments, the lender has grounds to repossess your home.

Auto loan

Like a mortgage, with an auto loan the borrower uses the property they are buying — a vehicle — as collateral to secure the loan.

The lender, usually a bank, credit union or dealership, holds a lien on the car until the loan is paid in full. Monthly payments vary widely depending on the price of the car, the length of the loan contract and the APR you receive.

Similar to a mortgage, if you are late on auto loan payments, the lien holder can repossess your car and, in some states, do so without going to court.

Part II: Secured loans vs. unsecured loans

Whereas a secured loan is made using collateral a borrower already owns, an unsecured loan is offered based on a lender’s trust that you’ll pay back what you owe. The lender takes a bigger risk with an unsecured loan because they don’t have any collateral to claim if the borrower defaults. As a result, unsecured loans may come with higher interest rates and fees.

This isn’t always the case, however — rates and terms vary widely depending on the lender and type of loan as well as the borrower’s credit history. For some, an unsecured loan may not even be an option, as lenders may offer only a secured loan to a consumer who is considered high risk. Borrowers may also prefer to put up collateral and get more favorable terms offered with a secured loan over an unsecured loan.

Unsecured loans include credit cards and student loans as well as personal loans. Like cash from some secured loans, personal loans can generally be used for any purpose — according to data from LendingTree nearly 34% of personal loans are intended for debt consolidation and just under 33% are targeted toward credit card refinancing.

With both secured and unsecured loans, it’s important to know that nonpayment has serious consequences for your financial well-being. In addition to seizing collateral put up for a secured loan, lenders can send your unsecured loan debt to a collections agency and take legal action to recoup losses. Default puts your credit rating and access to future loans in jeopardy.

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

 

Secured

Unsecured

Examples

  • Secured card

  • Mortgage

  • Auto loan

  • HEL/HELOC

  • Payday loan

  • Title loan

  • Personal loan

  • Student loan

  • Credit card

Collateral required?

Yes

No

Credit required

Varies. Title lenders may not require a credit check, while an auto loan or mortgage lender will

Yes — history and score vary by product and lender. Most federal student loans don’t require a credit check, however.

Cost of loan (APR, fees etc.)

Varies with loan type. Interest rates for auto loans go as low as 5.2%, while rates for title and payday loans can hit triple digits. These also come with fees for rolling over to another loan at the end of a term. Secured cards have APRs ranging from 9% to 21.99% and annual fees of $0-50

Personal: As low as 3.99% APR with origination fees ranging from zero to 8%
Student: Federal interest rates range from 4.45% to 7% plus fees between just over 1% and just over 4%. Private loans have variable rates, some high as 14.24%.
Credit: APRs start around 6% and hit upward of 25%. May also have annual fees

Pros

Opportunity to build credit and to borrow more than you might be approved for with an unsecured loan

Don’t have to put up collateral, helpful in emergencies, can be used for any purpose — especially to consolidate higher interest debt

Cons

Risk of default and loss of collateral plus additional money and property, negative impact on credit

Higher APR and fees, risk of overspending and creating loan dependency, damage to credit if you can’t afford payments

Best for (what type of consumer)

Depends on loan. Secured cards help build (or rebuild) credit history, while payday and title (predatory) loans are not recommended

Consumers looking to consolidate high-interest debt or purchase big-ticket items they’ve planned for IF they can afford the monthly payments

Learn more

The pros and cons of secured loans

Secured loans — aside from predatory payday and title loans — are available from a variety of lenders. If you already hold accounts at a bank, this would be the first place to look. Credit unions also offer secured loan services, though you must be a member to access their products. Finally, look at online, nonbank lenders who focus on loans without offering traditional banking products. No matter what type of loan you’re looking for, shop around to ensure you get the best rates and terms.

When it comes to choosing a secured loan over an unsecured loan, there are some benefits and risks to weigh.

Pros

Secured loans may allow you to get more money with less credit.
Lenders are often more willing to lend higher sums to consumers if the loan is secured by collateral because they have something tangible to repossess or foreclose on if the borrower defaults, according to Andrew Chan, a financial adviser at Locker Financial Services, LLC in Little Falls, N.J. Because this is a lower risk for lenders, they may also be more willing to forgive lower credit scores.

Secured loans often have lower interest rates and fees than unsecured loans.
Because secured loans pose less risk to the lender, the borrower may be offered lower rates, fees and payments, says Chan. This may give you access to the cash or credit that you need but may not otherwise get — if you use it responsibly.

Cons

The collateral you put up is always at risk.
Even with the best-laid plans, taking on a secured loan means that your personal property may be repossessed. If you default, your lender can take your collateral, sell it and repay the loan with the proceeds. As the borrower, you lose amount you already put into the loan plus valuable property that may be difficult to replace.

Lenders may trap you with prepayment penalties and other fees.
Even if you want to get out of your secured loan and have the ability to pay off what you owe, you may get hit with prepayment penalties — fees that lenders charge borrowers who repay loans before they are due. If you do pay off a loan early, the lender makes less in interest, so they may try to keep you in a costly loan by making it too expensive to leave. With predatory lending, loan fees can quickly add up each time the borrower tries to extend the loan.

Under the Truth in Lending Act, lenders must disclose all charges and fees associated with a loan, so you should know ahead of time if prepayment penalties will apply.

Staying safe with a secured loan

An important part of taking on any loan or form of credit, secured or not, is knowing that you can handle the payments over the life of the loan and continue to afford other financial obligations. Here are five factors that may impact your ability to manage your loan:

Job security. Some secured loans, like HEL and mortgages, are long-term commitments (20 to 30 years) . Even if you have the income to cover your loan payments and still live comfortably now, think about whether your current career and employer offer enough stability to do so down the line, as well as whether you have marketable skills to find other opportunities next month, next year, or far in the future if necessary.

Cash flow. Just because you are able to put up property as collateral doesn’t mean you’ll be comfortable making payments on your secured loan. Look carefully at your income and expenses to determine if the monthly payments, interest and fees on your loan are actually within your budget, both now and (as much as possible) in the future.

Lifestyle. Even if you have the cash, the burden of taking on a loan could impact your ability to live the way you want to, says Johnna Camarillo, assistant vice president of equity processing and closing at Navy Federal Credit Union.

“Make sure that you don’t put yourself in a situation that according to the numbers, I can comfortably make my payments, but I can’t take a vacation or I can’t go out with my family as much as I’d like,” she told MagnifyMoney. “People should really look at their total lifestyle and look at how much disposable income they want.”

Future expenses. If you have kids (or plan to) and want to pay for college, aspire to buy a home or are close to retirement, this may impact your ability to continue to make loan payments. Plus, if you default on a secured loan, lose your property and damage your credit, it will likely be difficult to restore your financial situation to the point where you can afford these investments.

Total interest and fees. When you shop around for a secured loan, look at the total cost you’re on the hook for over the life of the loan — especially when you put up collateral you don’t want to lose.

“Sometimes people get attracted to a low monthly payment, and they’ll stretch it out over 15 to 20 years, but they don’t realize the impact that has on the amount of interest that they pay,” Camarillo said. She recommends looking carefully at interest rates, transaction and maintenance fees, as well as any fees associated with entering and exiting your loan.

MagnifyMoney has a personal loan comparison tool that compares rates and requirements for unsecured loans and a calculator to show monthly payments and interest paid over the life of a loan to help you understand the commitment you are taking on.

When it comes to managing a secured loan, having all the information and planning carefully for the long term is key. Don’t jump on what seems like a good deal without shopping around and budgeting, and don’t sign for a loan without understanding the risk to your property and your overall financial health.

What happens if you can’t pay?

If you get in over your head with any kind of loan, the first thing to do is talk to your lender. If you are a member at a credit union or a long-time customer at your bank, your loan officer may be able to help you with a plan to get back on track. Even payday lenders may be willing to work out an Extended Payment Plan (EPP), which allows borrowers extra time to cover their outstanding debt without added fees or risk of being sent to collections. You can also find ways to free up funds in your budget by cutting expenses large and small.

If you aren’t able to make payments and your loan goes into default, however, there are serious consequences.

Your credit takes a hit.
Payment history is the single most important factor in your FICO credit score — it accounts for 35% of the total. It is also considered “extremely influential” in the VantageScore model. Scoring models take into account bankruptcies, foreclosures and missed/halted payments, and having any of these in your credit history can have a long-lasting impact on your ability to apply for credit in the future. Even secured cards, which are primarily used to build and improve credit, can backfire if not managed properly.

“A lot of people fail at secured cards,” said Lauren Saunders, associate director of the National Consumer Law Center in Washington, D.C. “A lot of people end up defaulting, and their credit score is worse than when they started.”

You end up on a debt spiral.
Defaulting on a loan can quickly put you into a cycle of debt that is difficult to break, especially if you are caught in a predatory lending situation. These lenders operate by charging interest rates and fees so high that the borrower is unable to make a dent in the loan principal and continues to take out additional loans just to pay the excess that accrues.

Auto title loans are “incredibly dangerous” because borrowers continue to pay fees to extend and end up paying out far more than they expected or planned for, says Saunders. “They’re not getting out of debt, and eventually many people not only lose all that money they paid but they lose their car.”

In 2017, the CFPB issued a rule requiring payday and auto title lenders to verify a borrower’s income, expenses and ability to repay before issuing a loan, a move that in theory would protect consumers from entering an endless cycle of payday and title loan debt.

You lose your collateral—and possibly more of your assets.
If you default on a secured loan made with physical property as collateral, there’s a good chance you’ll lose that item at the very least. A lender may repossess your car, foreclose on your home or come after the boat, motorcycle or other valuable property you put up. If it’s something that diminishes in value, what the lender sells it for may not cover the full amount of the loan, in which case they may come after you for the difference, says Chan.

“Although the lender may be willing to offer higher loan amounts with a secured loan, consumers still need to make sure that they can afford the monthly payments associated with the higher loan amount,” he added.

Experts agree that the biggest risk with a secured loan is losing property you already own. When you put your home, car, paycheck or savings on the line, you must understand the consequences of default — especially if you are already in a difficult financial situation.

“The overarching theme is, ‘Can you afford to lose the collateral?’” said Saunders. “How catastrophic would it be for you if you lose the collateral? You shouldn’t put it at risk if you can’t afford it. You shouldn’t pawn your wedding ring, but you might be willing to pawn a TV.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Long
Emily Long |

Emily Long is a writer at MagnifyMoney. You can email Emily here

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Rising Incomes Outpace Increasing Housing Costs in Every Major American City

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Most U.S. workers’ real wages have been stagnant over the past four decades, according to analysis from the Pew Research Center. With the prices of crucial expenses such as housing and healthcare increasing over these decades as well, consumers’ purchasing power today is about the same as in the 1970s. These circumstances have contributed to the belief that overall, Americans’ incomes aren’t keeping up with the rising costs of living.We set out to analyze U.S. Census Bureau data for America’s 100 largest metros to compare incomes to housing costs. Our findings show that this trend might be reversing — at least for residents of America’s biggest cities.

Compared to three years ago, the typical household in these cities has more money left over after paying for housing. In other words, even though housing costs have risen over the last three years, the dollar amount of wages have grown faster and exceeded the dollar pricing increases for both renting and owning a home.

In fact, famously-expensive metros saw the biggest jumps in the gap between income and housing costs. This trend also holds in places where rents take a greater share of household income.

Key findings

  • The median household in each of the 100 largest metros takes home more cash after paying for housing than they did three years ago.
  • Households in San Francisco saw the biggest gain in gross income after housing costs, up $10,642 more per year compared to three years previous. For renters, the amount is $9,982, and for homeowners with a mortgage the amount is $12,178.
  • Annual savings at the other end of the list are still substantial. The median household in Albuquerque, N.M. has an extra $1,750 a year — $1,438 for renters and $2,194 for homeowners with a mortgage.
  • Rent costs are increasing at a faster rate than costs for households who own their own homes and still have a mortgage in every metro. Even so, wage growth has outstripped those increases.
  • The 2017 homeownership costs in most metros exceeds the 30% marker that is traditionally used as a guideline for affordable housing costs. This suggests that homeownership is still not affordable for most households in those metros.
  • In a few places, the percentage of a household’s income spent on rent has increased — such as in Denver; Colorado Spring, Colo.; and San Jose, Calif. Even so, these households still take home more dollars after paying rent than they did three years ago.
  • The effect is especially pronounced in famously expensive cities; the first seven metros on our list, from San Francisco to Boston, are notorious for high rent costs.
  • Median housing costs have actually dropped in a handful of cities, such as Atlanta (down by $24 per year), Birmingham, Ala. ($24), Chicago ($24), Cleveland ($84), Detroit ($144), Jacksonville, Fla. ($36) and Las Vegas ($216).
  • Rents have risen at a faster rate than homeownership costs, but median costs for the latter are still higher across the board. As a result, homeowners today have more funds leftover after paying their mortgages and property expenses, even though they are spending a greater percentage of their incomes on housing.
  • Median rents in every metro lie comfortably below the 30% mark of median gross income, but homeownership costs exceed the 30% rule in most places.

Our study compared local incomes to housing costs in the top 100 metros. We then ranked them based on how much local wages have increased compared to housing costs, dollar for dollar, with the highest increase starting at 1 (in green on the map above) and going to the lowest at 100 (in red).

Hover over the map to see the ranking of each city and how much incomes after housing costs have increased in the past three years.

10 cities where incomes are rising faster than housing costs

When income rises faster than housing costs, our study found, this puts thousands more dollars per year into people’s pockets.

With these extra funds, households might find they have more funds available to cover other living expenses, from groceries to utilities to healthcare. This money can ease the demands placed on households by consumer debt such as credit cards, auto loans or personal loans. It could even grant them more room in their budgets to save, get out of debt or invest.

Here, we highlight the 10 cities in which the gap between median incomes and housing costs is growing the fastest.

1. San Francisco

San Francisco has become notorious in the past decade for its soaring housing costs, but it appears that local incomes are finally catching up. This city had the highest increase in local incomes left over after housing costs — for both renters and homeowners.

Overall, San Franciscans have $10,642 more in gross income after paying for housing than they did three years ago. That translates to a gain of $9,982 for renters, and $12,178 for homeowners.

Despite these high dollar amount increases, the percentage of the median gross income required to cover the median rent has remained mostly unchanged, falling just 0.2%. By contrast, San Francisco had the steepest decline in the percentage of a local median income required to cover homeownership costs — down 12.3% from three years ago.

2. San Jose, California

Neighboring San Francisco is San Jose, the next city where residents saw the largest increases in incomes overall, rising $12,849 in the past three years. This increase helped typical workers pocket $9,909 more in gross annual income after paying housing costs, compared to three years previous.

Rent costs rose faster than home owning costs over those years, too. Renters’ after-housing income rose $9,117 in the past three years, compared to $11,913 more for homeowners.

Despite having one of the largest increases dollar-for-dollar, however, San Jose’s numbers are less impressive when comparing housing costs directly to income. The percentage of the city’s median gross income required to cover median housing costs fell by just 0.8% in the past three years — the smallest decrease of any city we surveyed.

3. Seattle

In Seattle, the median gross income increased by $8,300 per year in just three years. Local workers’ paychecks increased far faster than their housing costs, which were up $1,164 during the same period — resulting in a net gain of $7,136 overall.

During the three years we looked at, Seattle homeownership costs decreased by 10.3% relative to income while rent costs were up 2.6% compared to incomes. The three-year increase in income after housing costs was $6,272 for renters, and $8,180 for homeowners. In actual dollars, this meant homeowners netted $1,908 more per year from rising incomes than their renting neighbors.

4. Austin, Texas

At No. 4 is Austin, where the amount of a median gross income left over after paying median housing costs increased by $6,737 per year. This number specific to renters is $6,125, and homeowners are taking home $7,025 more after housing costs per year.

This is thanks again to rising local incomes, which shot up $7,817 from 2014 to 2017 while median housing costs increased by just $1,080.

Overall, the percentage of a gross median income required to cover Austin’s median housing costs fell by 4.5% over those three years.

5. Portland, Oregon

Portland is No. 5 among cities where incomes have increased the most compared to housing costs in over the past three years. This net gain in dollars is $6,733, reflecting median incomes that increases $7,825 per year compared to a rise of just $1,092 in annual housing costs.

Homeowners in Portland saw the biggest gains; the percentage of the median income required to cover the costs of owning a home fell by 11.2%. In dollars, homeowners here had an average of $7,693 more of their gross income leftover after covering housing costs than three years previous. For renters, this figure is $6,025.

Notably, Portland ranked No. 7 out of 50 in our rankings of the places where Americans live the most balanced lifestyles.

6. Denver

Next is the Mile High City, Denver, where increases in income outstripped the rise in housing costs to grant locals an average of $6,418 more in annual income, after housing costs. This is based on the $7,678 rise in Denver’s median income in the past three years, which outsrippted the $1,260 rise in housing costs during the same period.

Rising rent costs, however, have countered some of the income gains for Denver residents. For workers earning the local median income, the percentage of their pay that would be devoted to rent costs actually rose by 7.7% over three years — the steepest increase of any city we surveyed. Compare that to a 3.1% fall in costs-to-income for homeowners.

7. Boston

Another high cost-of-living city makes the list with Boston. Fortunately, the median annual income was up $7,344 from 2014 to 2017, helping to make up for some of the city’s high costs. Housing costs rose $1,008 per year during the same period.

In all, a typical Bostonian has $6,336 more in gross income leftover after paying for housing, compared to three years ago. This same figure is $5,952 for renters, specifically, and $7,128 for homeowners.

8. Bridgeport, Connecticut

In the city of Bridgeport, slower-rising housing costs are also contributing to a widening gap between housing costs and incomes. Here, annual housing costs are just $432 higher than they were three years ago — the smallest increase in housing costs among the top 10 cities.

That means that more of the $6,610 increase in incomes from 2014 to 2017 will make its way into Bridgeport resident’s pockets being eaten up by housing costs.

In all, the three-year increase in incomes after accounting for housing costs is $6,178 .This number is actually higher for local homeowners, at $7,018, and lower for renters,$5,266.

9. Nashville, Tennessee

Nashville locals have $5,984 more in gross income after paying housing costs today than they did three years ago. Housing costs rose $576 during that time, while incomes were up $6,560.

While this isn’t the highest dollar amount, it reflects a drop of 6.7 percentage points in the ratio of housing costs to income. In other words, Nashville is the top 10 city where locals who saw the biggest increase in the percentage of their income they get to keep rather than pay toward housing.

10. Salt Lake City

Rounding out the list is Salt Lake City, which ranked in the top cities to live out your golden years. Despite a boom in housing costs in the past 15 years, wages in this Utah city have also increased. From 2014 to 2017, the median household income rose $6,309, exceeding the $456 rise in housing costs for a total gain of $5,853 for Salt Lake City locals.

In all, Salt Lake City residents are still coming out ahead, with more money leftover after paying for housing compared to three years previous.

Understanding the metrics

Comparing data from the American Community Survey for 2017 to 2014, analysts subtracted the change in median household income from the change in median housing costs (annualized) to determine the three-year change in gross income left over after paying for housing.

In addition, we also calculated the change in the percentage of income a median household would spend on median housing costs, and then we repeated the exercise for median rents and median costs for homeowners who have mortgages. In all, this generated the following findings for each city:

  • 3-Year change in gross income left over after housing costs (annual)
  • 3-Year change in gross income left over after rent (annual)
  • 3-Year change in gross income left over after homeownership costs, including mortgage (annual)
  • 3-Year change in the percentage of the median gross income required for median housing costs
  • 3-Year change in the percentage of the median gross income required for median rent
  • 3-Year change in the percentage of the median gross income required for median homeownership costs, including mortgage

Scroll to the end of this piece for a table that includes these full study findings for each city.

The median housing cost estimate is inclusive of every household within a Metropolitan Statistical Areas, which may include a city and surrounding communities. The rent estimate is limited to people who pay rent, and we limited the homeownership costs (which includes costs such as taxes and insurance) to those with a mortgage. We excluded homeowners without a mortgage, as their housing costs are likely to stay close to flat and wouldn’t reflect area changes in housing costs.

In several instances, we found that a higher proportion of median income was required to pay the median rent in 2017 than it was in 2014. Even in these cases, the median households brought home more money after paying rent.

Conventional wisdom says that households should spend no more than 30% of their gross income on housing costs. In every metro we reviewed, the ratio of median income required to pay median rent fall comfortably below this line. Yet rents were more likely to have increased on pace with wages, meaning renters saw smaller gains in after-housing income than homeowners.

The ratio of housing costs to income homeowners, however, exceeds that limit in most metros, implying that homeownership is still not affordable for the typical household. Together, these findings suggest that while homeowners’ housing costs rise more slowly than renters’, they must use a large chunk of income to cover those costs than do renters.

Full rankings

Below is a table with the full findings for all 100 cities in our study. After the column listing the city, the leftmost three columns shows the change, in dollars, of gross income left after paying for housing costs. The rightmost three columns show the change in the percentage of the median income needed to pay for the median housing costs in that city.

Methodology

Researchers compared 2017 and 2014 median household income, as well as 2017 and 2014 median housing costs, median gross rent, and median housing costs for homeowners with a mortgage.  The results were aggregated to the 100 largest municipal statistical areas, and the data is from the American Community Survey 5-Year estimates from the U.S. Census.

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Elyssa Kirkham
Elyssa Kirkham |

Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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Personal Loans

No Credit, or Poor Credit? Here Are Your Loan Options

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Mixed Race Young Female Agonizing Over Financial Calculations in Her Kitchen.

Updated May 01, 2019
Don’t have a credit history established, or have a low credit score? It can be challenging to find lenders that will approve you if you have a thin credit file or poor credit, but it’s not impossible.

You still have options when it comes to personal loans, and these options come from reputable lenders.

What’s even better is that these lenders will only conduct a soft credit inquiry when you apply to find out what rates they can offer you. This means your credit score won’t be negatively affected, so you don’t have to worry about damaging it further.

In this article we’ll review how to find reputable lenders, why you should stay away from two popular options people turn to when they’re in a poor credit situation: payday and title loans. And what you can do to increase your credit score.

Check for approval without a credit hit

It’s worth noting low scores aren’t always indicative of how responsible you are with credit. A low score, or thin file, could just be a result of a short credit history. If you have a clean history (no late payments, low credit utilization, etc.), you’ll have an easier time obtaining a loan over someone who has had delinquencies on their record, but might have a higher score.

If you have bad (or no) credit, you should apply to as many lenders as possible that use a soft pull to ensure you don’t hurt your credit score. We recommend starting with LendingTree, where you can use one short application form to get rates from multiple lenders at one.

Company
APR
Terms
Credit Req.
LendingTree

As low as 3.99%

24 to 60

months

Minimum 500 FICO®

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on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure.

Disclaimer

A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

6.95%-35.89%

36 or 60

months

600

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on LendingTree’s secure website

Our Commitment We'll receive a referral fee if you click here. This does not impact our rankings or recommendations.

7.69%-35.99%

36 & 60

months

620

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on LendingTree’s secure website

We'll receive a referral fee if you apply for this loan. This does not impact our rankings or recommendations.

9.95%-35.99%

24 to 60

months

Varies

SEE OFFERS Secured

on LendingTree’s secure website

Avant branded credit products are issued by WebBank, member FDIC.

6.95%-35.99%

36 or 60

months

640

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure.

For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

59.00%-199.00%

9 to 24

months

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree: Dozens of lenders partner with LendingTree – and many of them may approve people with poor or no credit. You can fill out a simple form and compare multiple offers in minutes. We highly recommend starting your shopping experience here first to have a good chance of getting a loan.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Here are 5 personal loan lenders for people who have less than ideal credit (meaning under 700) that will let you check your rate without impacting your credit score:

LendingClub: People with credit scores below 600 may get approved. You can borrow $1,000 – $40,000 and get the money deposited into your account within a few days. Fixed APRs range from 6.95% –35.89% on monthly terms of 36 or 60. LendingClub has an origination fee of 1.00% - 6.00% its loans. LendingClub is not available in Iowa or West Virginia.

APR

6.95%
To
35.89%

Credit Req.

600

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

1.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates and approvals for people with credit scores as low as 600.... Read More

Upstart: Borrow between $1,000 and $50,000 for 36 & 60 months with APRs ranging from 7.69% to 35.99%. While the minimum credit score needed to qualify is 620 (Upstart will also consider applicants who don’t have a score), you must have a clean credit history. You could also be eligible for next day funding.

APR

7.69%
To
35.99%

Credit Req.

620

Minimum Credit Score

Terms

36 & 60

months

Origination Fee

0.00% - 8.00%

SEE OFFERS Secured

on LendingTree’s secure website

Upstart is an online lender created by ex-Googlers.... Read More

Avant: You could borrow anywhere from $2,000 to $35,000 through Avant, and you could receive your funds as soon as the next business day. APRs range from 9.95% – 35.99%. Although the minimum credit score Varies, you have a much better chance if your score is above 580. Avant is available in all states except Colorado, Iowa, West Virginia, and Vermont.

APR

9.95%
To
35.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Up to 4.75%

SEE OFFERS Secured

on LendingTree’s secure website

Avant branded credit products are issued by WebBank, member FDIC.

Avant is an online lender that offers personal loans ranging from $2,000 to $35,000. ... Read More

Prosper: Another peer-to-peer marketplace lender, Prosper’s loans are similar to LendingClub’s. You can borrow $2,000 to $40,000 with APRs ranging from 6.95% to 35.99% on 36 or 60 month terms. There’s an origination fee of 2.41% - 5.00%, and its minimum credit score is 640.

APR

6.95%
To
35.99%

Credit Req.

640

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

2.41% - 5.00%

SEE OFFERS Secured

on LendingTree’s secure website

Advertiser Disclosure

Prosper is a peer-to-peer lending platform that offers a quick and convenient way to get personal loans with fixed and low interest rates. ... Read More


For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

OppLoans: If you have no or bad credit, Opploans is an online lender that could help. If your credit score is below 0 (or if you have no credit score at all), OppLoans will work with you. You can check to see if you are approved without impacting your score. And – unlike payday lenders – OppLoans offers much more affordable borrowing options. They also have great reviews – with a customer service rating of 4.9/5 stars.

APR

59.00%
To
199.00%

Credit Req.

Varies

Minimum Credit Score

Terms

9 to 24

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

There are several other personal loan lenders that will do a soft credit check. You can find them on our personal loan table here. While many of these lenders have minimum credit score requirements, you’ll find they take other factors into account aside from your FICO score.

Additionally, since these lenders only do a soft credit pull, you’re free to shop around for the best rates without fear of damaging your credit score.

Why You need to Stay Away from Payday Loans and Title Loans

Not eligible for personal loans? Don’t turn to payday loans or title loans.

If you’re not familiar with either, you might be wondering what’s so bad about them. After all, they seem convenient – most offer “fast cash,” and if you live in a populated area, you’ll probably find a payday loan or title loan shop nearby.

However, both require you to give something in exchange for funds, and neither require any sort of stringent approval process to ensure borrowers can afford the loans.

Payday Loans

Payday loan companies require you to write a check for the amount you wish to borrow, plus a set fee. The lender holds onto the check until the loan becomes due (typically on the borrower’s next payday, hence the name), and gives the borrower the money they need in the meantime.

The problem? If you can’t pay when the loan balance becomes due, you can choose to extend the term of the loan. When you do, you get hit with more fees. The APR on payday loans is extremely high, so you’ll pay more each time you extend your loan term.

Payday loans are on the smaller side – anywhere from $100 to $1,000. According to PayDayLoanInfo.org, the average term is two weeks, with 400%+ APRs. When you factor in fees, the APR can go up to 780%.

[Stuck in a Payday Loan Trap? Here are the ways out.]

Title Loans

Title loans require you to give your car’s title to the title loan company in exchange for an amount equal to the appraised value of your car. You usually have to own your car outright to be eligible for a title loan, and the term is around 30 days.

Like payday loans, if you can’t pay on time, you may choose to roll the loan over to the next month, incurring more fees. If you can’t pay back the loan at all, you run the risk of the lender repossessing your car.

As you can tell, both of these options are bad ideas if you want to stay clear of getting into a horrible debt cycle. These loans are purposely too expensive for borrowers to afford. If people are looking for quick cash because they don’t have any, it stands to reason they’ll be in the same situation a week or two from the time they borrow.

Non-Profit Credit Counseling to Rebuild Credit Score

You want to make every effort to improve your credit score, even after you’re approved for a loan, because having a good credit score will benefit you in other areas of life. For that reason, you might want to consider teaming up with a non-profit credit counseling service.

These companies can provide you with personalized advice on your specific situation so you can work on rebuilding your credit score. They can also work with your creditors and negotiate on your behalf to possibly lower interest rates or get better terms on your existing debt.

It can be tricky to find a reputable credit counseling agency – even with a non-profit organization. If you’re interested in a credit counseling service, USA.gov lists a few considerations and questions you should ask before committing. You want to make sure the credit counseling agency is actually going to help you get your credit and financial situation under control.

Alternative to Ways to Build Your Credit Score

If you don’t qualify for a personal loan, and don’t want to turn to payday or title loans, there are a few steps you can take to increase your credit score. This post has 6 tips to help get you started. These methods won’t boost your score immediately, but over time, you’ll see an improvement.

The Federal Trade Commission also has 6 alternatives to payday loans on its website, which might apply to your situation. For example, if you’re a member of a credit union, you could inquire about a loan through them as you have an established relationship already.

Also, if you haven’t started budgeting and tracking your spending, you should – doing so can help you spot problem areas with your money.

Read the Fine Print and Shop Around

Regardless of which loan you decide to apply for, always consider the cost. You want to make sure you’re getting the best possible terms, which means getting the lowest APR offered. Typically, cash advances and credit cards are going to have higher APRs than personal loans but lower than payday lenders.

Remember to always read the fine print. Loans of any type have plenty of fees associated with them that you should avoid. Shop around for the best deals and work on improving your credit score so better options become available to you.

*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at [email protected]

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