How to Get a Secured Loan with Bad Credit

by Fraser Sherman ; Updated July 27, 2017
A man is sitting in his new car holding keys.

A loan is "secured" when you pledge some tangible asset, such as a home or car, as collateral. Before assuming your credit is too bad to qualify you for such a loan, check your numbers. Order a free credit report from the Annual Credit Report website, where you also can get your credit score for a nominal fee. It's possible your credit's not as bad as you think. If your credit is indeed subpar, landing a loan is difficult but not impossible.

What Lenders Want

Your credit score is one of the first things lenders look at when reviewing your application. If it's low, it's assumed you're a bad credit risk. If it's below 620, you may not qualify for a mortgage, for instance; below 700, the rates go up. A car loan is easier to qualify for, as you borrow less money for less time. That means a no-go score for mortgage loans may still qualify you for an auto loan. However, your lenders still want your other financials to be in good shape. You have to have a steady income and be earning enough to cover your monthly loan payment, plus your other debts.

Shop Around

Lenders aren't all alike. A credit score that makes one lender treat you like a pariah may be acceptable to another. Start with your regular bank or credit union, as you have an established business relationship there. If that doesn't work, check out regular lenders before turning to specialists in subprime, high-interest loans. If you start with subprime lenders, it'll cost you more to borrow. If a lender does turn you down, ask what would have to change to make you acceptable.

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Pay Bills Promptly

The longer you can wait to take out the loan, the better, because you have more time to improve your financials. Bad credit isn't eternal: Most problems drop off your credit history after seven years. Even before that, paying all your credit card bills regularly improves your credit score. The longer your track record of paying bills on time, the greater the chance a lender will cut you some slack regarding your past problems.

Reduce Your Debts

The amount of debt you carry is another big influence on your credit score. Paying it down will push your score higher. Reducing debt also increases the size of the loan you qualify for. If, say, your student loans and credit card payments eat up 50 percent of your monthly pay, that makes taking on more credit risky even if your score is good. Lowering the debt-to-income ratio reduces the risk for the lender.

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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