How to Qualify for a Secured Loan

by braniac ; Updated July 27, 2017
Qualify for a Secured Loan

A secured loan is a great option for someone with bad credit. A personal secured loan can be used to consolidate debt, pay for school, finance the purchase of an automobile, to weather a financial storm, or for many other reasons.

A high credit score is not necessary since the loan is secured by assets or property that is held by the lender as collateral against the loan. If the borrow defaults on the loan, the lender is able to liquidate the property held as collateral to repay the loan.

Obviously, it is important to make sure that you can repay before accepting the loan. Usually banks will allow some missed payments before seizing assets, but being in default on a secured loan is not an ideal situation to be in. If you are in an emergency situation, or if you need a loan with a low interest rate for some reason, here is how to proceed.

Step 1

Build your credit score up as high as possible. Although a secured personal loan is ideal for those with bad credit, a high credit score is still helpful. Your credit score determines your interest rate. The higher your credit score, the lower the interest rate you can qualify for. I recommend doing some research about how to raise your credit score. Usually a lot of progress can be made in just a month or two, despite rumors to the contrary.

Step 2

Decide which of your assets could be used as collateral. Generally, lenders are looking for assets worth a lot that can be easily liquidated. A baseball card collection, star wars collectables, and some jewelry would require a great deal of time and effort to convert to cash, and so assets such as this would likely not get you approved for a secured personal loan. Things like automobiles, real estate, and the like are generally preferred.

Step 3

Gather information you will need when applying for the secured loan. You will need personal information such as a social security number and home address, financial records such as tax documents and pay stubs, and proof of ownership of the assets you would like to use as collateral. You may also need some additional documents depending on the specific lender.

Step 4

Choose some lenders and do research on the rates and terms that they will offer you. Compare each offer to make sure you are getting the best loan possible for your situation and needs.

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