If you have bad credit, then finding a loan of any kind can be difficult. However, although it can be frustrating to secure a loan with bad credit, it is entirely possible.
One way to improve your chances of being approved for the loan you need is to provide collateral for the loan. Collateral has been around as long as people have been lending money to other people.
The collateral you offer to the lender secures the loan if you are unable to repay the debt.
Some more traditional forms of collateral are your home or vehicle. Generally, lenders accept cars as collateral only if you have a substantial amount of equity in your car. However, you may be able to get approved for a personal loan by providing collateral in other ways.
Let’s dive into the best options to secure a loan with collateral if you have bad credit.
Getting a Collateral Loan with Bad Credit
Although you can get an unsecured personal loan without collateral, you may find it easier to get approved with poor credit if you provide collateral. You may also get a lower interest rate with collateral, but it will still probably be higher than if you had good or excellent credit.
If you have decided that providing collateral is the best path for you, you have options. You can use your vehicle, savings account, or CD for some secured personal loans. The requirements for collateral will vary based on the lender and your unique situation.
Here are a few of the best lenders that offer secured personal loans.
Since 1912, OneMain Financial has been providing bad credit personal loans. Loan amounts range between $1,500 and $25,000 with a typical APR range between 25.10% and 36.00%
OneMain looks at your credit history. However, they are more interested in the collateral you can put up for secured loans. With OneMain, you can use a car, truck, camper, RV, or motorcycle as collateral for your secured loan.
OneMain requires you to visit a physical branch to discuss your loan options with a professional and bring in certain documents. Then, after they fund your loan, you will have various payment options to make your life easier, including through an app, through the mail, at a physical branch, and some Walmart locations.
Check out our full review of OneMain Financial here.
Wells Fargo is a mainstay in the American banking industry. If you currently have a savings account or CD account held at Wells Fargo, then you may be able to secure your personal loan with either of those accounts.
With Wells Fargo, you may be able to lower your APR for a secured personal loan if you put up your Wells Fargo savings account or CD as collateral. Although the collateral will not necessarily improve your chances of being approved for the secured loan, it can get you better loan terms and a higher loan amount.
The bank offers personal loans with loan amounts ranging between $3,000 and $100,000.
Use Your Car as Collateral for a Loan
If you have a vehicle on hand, then you have another way to secure a loan. Instead of pursuing a secured personal loan, you can apply for a cash-out refinancing or car equity line of credit for your vehicle.
With a cash-out refinance, you can refinance your auto loan for more than you owe on the vehicle. However, you cannot obtain a loan for more than the total equity you have in the car. For example, if you owe $5,000 on a car worth $15,000, then you may be able to cash-out refinance for up to $10,000 with certain lenders.
Typically, lenders require that your car is in good condition with a minimal number of miles to qualify for this type of secured loan. Plus, you’ll need to have some time left on your current auto loan.
Below are some online lenders that may be able to work with your bad credit if you have a vehicle as collateral.
Since 1999, Auto Credit Express has worked with thousands of borrowers to secure cash-out auto refinances. The company has a quick prequalification form that can help you determine whether you should apply within seconds.
The basic qualifications are that you are bringing in at least $1,500 a month. Plus, you’ll need to be able to prove steady employment for at least one year.
Auto Credit Express may be able to connect you to a lender and a loan offer within minutes. If you want to learn more about Auto Credit Express, then read our full review here.
Car.Loan.com works to match online lenders and borrowers that are able to work together. Since 1994, the company has been working with borrowers with both good and bad credit scores.
Car.Loan.com can connect you to a lender willing to work with you in minutes after a quick prequalification process. Once they connect you with a lender, you need to have proof of income, insurance, identity, and residence on hand to move forward.
Check out our full review of Car.Loan.com here.
MyAutoLoan operates as a matching service. With just one application, you can receive multiple offers in just minutes.
Before you apply, make sure that you have a credit score of 500 or higher. Also, you will need an income of $1,500 a month to qualify. The interest rates on refinancing can vary depending on your car and your financial situation.
Find out more about MyAutoLoan.com in our full review here.
Use Your Home as Collateral for a Loan
Although using your vehicle as collateral is one way to obtain a secured loan, it may not be the most valuable asset you hold. For example, if you own your home, it can act as collateral for either a cash-out refinance or a home equity line of credit.
You have many options for home equity loans, but these are some of our favorites.
LendingTree offers a matching service to refinance options that will allow you to use your home equity as collateral for an immediate loan. The platform has hundreds of lender partners that it works with to find the best option available for you. Within a few minutes, you’ll have offers from various partners.
PenFed offers home equity lines of credit up to $400,000 based on the value of your property. The limit to your loan will depend on the loan-to-value ratio on your home, which can be up to 90%. Depending on what you need the money for, that high limit can be a life-saver.
Quicken Loans works with borrowers of all credit types to provide cash-out refinances. In addition, the company has a mobile-friendly app that will allow you to walk through the process quickly. As the largest provider of mortgages in the nation, it is a company that you can be comfortable working with.
Find out more about Quicken Loans in our full review here.
Bank of America has over 5,000 branches around the U.S., which makes them an excellent option for your home equity loan. The bank offers three-year loan terms that can allow you to save money over longer-term offers. With great customer service and transparent disclosure of all fees, it is a company you can feel comfortable doing business with.
What is a secured loan?
A secured loan is a personal loan backed by an asset, such as your home or car. The lender can seize your asset if you cannot pay back your loan. Because of the ability to recoup money lent via the asset, the lender takes on less risk, and thus secured loans typically have lower interest rates than unsecured loans.
What can you use to secure a personal loan?
Secured personal loans require collateral to act as a protective measure for the lender. If you fail to make your payments, the lender can seize the collateral to repay the loan. The most common forms of collateral include:
Most online secured personal loans require you to secure the loan with a vehicle. Also known as auto equity loans, they allow you to borrow money against the value of your car.
A lender will require you to insure the vehicle against physical damage and theft and perform a thorough appraisal of the vehicle before deciding on your loan amount. You can borrow as much as 80% of the car’s value.
You can use your home as collateral to get a secured personal loan, but be aware that you’re putting the roof over your head at stake. A secured lender will require you to take out an additional homeowner’s insurance policy to protect the value of your home. You can borrow up to 85% of your home’s value with a secured personal loan.
A Savings Account
Some lenders accept savings accounts as collateral for secured personal loans. This is a less risky option for the lender, as they can access your funds if you don’t make your payments. You can borrow any amount of money up to the balance in your savings account.
Where Can You Get a Secured Personal Loan?
Below are different lender options where you can obtain a secured personal loan:
Most banks, including U.S. Bank, the nation’s largest bank, offer secured personal loans to their customers. Banks allow their customers to use their assets, including deposit accounts, to secure personal loans.
Borrowers who use their savings accounts as collateral cannot access the money for the loan duration. It’s also common for these lenders to charge origination fees.
Credit unions are nonprofit entities that promote the financial well-being of their members. Credit unions are their first stop for most borrowers since they provide financial help to consumers with poor credit at more affordable rates than banks.
Credit unions also offer CD-secured loans to help their customers build credit. Federal credit unions offer a maximum APR of 18%, but there may be extra application fees.
Online lenders have made it easy to apply for a secured personal loan from the comfort of your home. Most online lenders allow you to check your rate on an unsecured loan without affecting your credit.
This type of loan is perfect for borrowers with poor or fair credit scores and who want to avoid the hassle of faxing documents or visiting a brick-and-mortar establishment. Most online loans carry a maximum APR of 36%, and the loan amount depends on your credit and the value of your collateral.
Secured Loans from Credit Unions
Credit unions are an excellent option for secured loans. Credit unions provide loans and other financial products and services to their members at lower rates than traditional banks.
Here are two excellent credit union opinions for secured loans.
First Tech Credit Union
First Tech offers flexible loans with reasonable rates for borrowers seeking a customized debt consolidation loan with quick funding. There are no origination or prepayment fees, and you can use the loan for various purposes, including consolidating debt, home improvements, and covering major expenses.
You can borrow as little as $500 up to a maximum of $50,000 for a length of two to seven years.
However, to qualify for a loan from First Tech, you need a minimum credit score of 660 and a steady source of income.
Navy Federal Credit Union
Are you in need of financing to fund your home improvement project? Your best bet is Navy Federal Credit Union. They offer a wide range of loan amounts and repayment terms for members with a fair credit score.
You can borrow $250 up to $50,000 for a term of one to five years at competitive rates. The APR rate ranges between 7.49-18.00%, depending on your credit score and loan amount.
Secured Loans from Online Lenders
With increased competition in the lending space, online lenders are offering some of the most competitive secured loan rates currently available. In addition, these lenders cater to individuals with various credit scores, so you don’t need excellent credit to get a reasonable rate.
Our top picks for the best online lenders are:
Upgrade secured personal loans have many consumer-friendly features and discounts, including a minimum credit score of 560 to cater to fair and bad credit borrowers. In addition, you can qualify for a lower rate on the loan if you secure it with a vehicle.
The rate offered will depend on your credit usage, credit score, and loan term. Upgrade also allows secured and joint loans and offers a 0.5% discount for setting up autopay. With a wide range of repayment plans, you can borrow amounts between $1,000 and $50,000 for a repayment term of between two and seven years.
However, Upgrade charges a 2.9%-8% origination fee that is deducted from the loan proceeds. Being an online lender, you can submit a loan application through Upgrade’s website and have the loan funded in as little as one business day.
Best Egg is another online lender that offers outstanding secured personal loans for borrowers with a credit score as low as 600. You can access loan amounts of between $2,000 to $50,000 for a term of anywhere from three to five years.
Best Egg charges an origination fee of 0.99%-5.99%, and APR rates range from 5.99%-29.99%. To be eligible for this loan, you must provide proof of stable income, a valid U.S. address, and a social security number.
Providing collateral for a loan may be the best way to obtain a loan with reasonable terms if you have poor credit.
Deciding what to put up as collateral for a loan is a big decision. Although you hope that you can repay the loan on time, things happen. For example, you could lose your job or have another major emergency pop up.
Before you sign for any loan, make sure to understand the terms of the loan. If you cannot repay the loan, the lender may have the ability to take possession of your collateral. Therefore, only accept a secured loan if you are sure that you can repay the debt or are willing to lose the assets that you have put on the line.