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$300 – $5,000

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4 – 24 Months

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The figures provided are representative of a typical installment loan made or arranged by CreditNinja and are not guaranteed rates or terms that you may qualify for. For more information click here.

A secured loan is a personal loan where the borrower offers an asset, known as “collateral,” in order to get the loan. If the borrower doesn’t repay the loan, the lender will keep the collateral to recover their loss. 

Examples of secured loans include auto loans, mortgages, pawn shop loans, and secured credit cards. These loans can be accessed either online or at physical locations.

How Do Secured Loans Work?

Secured personal loans, provided based on collateral like a home or car, reduce the lender’s risk. If a borrower defaults, the lender can legally sell the collateral to recover losses. These online secured loans are often easier to obtain and may offer low interest rates, but also might pose a risk to bad credit borrowers who might lose their pledged assets if they fail to pay.

Types of Secured Loans:

  • Mortgages: These are one of the most common types of secured loans, and they’re used to purchase a home. The collateral used for a mortgage is the borrower’s house itself. If the borrower can’t make their payments, they risk losing their home.
  • Auto Loans: These are secured by the value of a motor vehicle, and borrowers take out auto loans to buy a car, SUV, motorcycle, boat, or any other motor vehicle. They work the same way as a mortgage, in that the lender can repossess the vehicle if the borrower stops making payments.
  • Online Title Loans: These are short-term, secured personal loans for bad credit backed by the value of a motor vehicle. Unlike auto loans that are taken out to buy a car, title loans for bad credit are secured with an automobile that a borrower already owns. If the borrower is unable to repay the loan, the lender can take away their vehicle to recoup their loss. This can lead to a poor credit score, and more debt. 
  • Secured Credit Cards: These credit cards are a great way to build up your credit score if you have bad credit or no credit. Unlike other online secured loans for bad credit that use a car or home as collateral, secured credit cards use a cash deposit. If the borrower defaults on his/her payment, the bank uses the deposit to make payment and cover any fees.

What Can Be Used As Collateral For a Loan?

There are various assets that can be used as collateral to secure a loan. However, the type of collateral you can use varies depending on the lender. For example, lenders that offer auto title loans only accept vehicles as collateral, while other lenders may offer more flexible options. 

These are some of the most common assets used as collateral:

  • Real Estate: Residential properties, commercial buildings, and land.
  • Vehicles: Cars, trucks, motorcycles, and boats.
  • Equipment: Often used by businesses to secure loans, including manufacturing machinery, computers, and office equipment.
  • Investment Accounts: Stocks, bonds, mutual funds, and other securities.
  • Savings or Certificates of Deposit (CDs): Funds held in bank accounts or CDs.
  • Precious Metals: Gold, silver, and other valuable metals.
  • Personal Assets: Jewelry, art, collectibles, or other high-value items.

Secured vs. Unsecured Loans

Personal loans for bad credit can either be secured or unsecured loans. In order to get a secured personal loan, a customer will be required to offer up something valuable. This is referred to as “collateral.” A home or a vehicle are the most common types of collateral. On the other hand, an unsecured personal loan for bad credit does not require collateral, making them potentially riskier for the lender.

Since it may be riskier for the lender, an unsecured loan may carry higher rates and fees. Although this will depend on the loan, lender, and your credit score when applying for an unsecured loan. Just like with secured options, an unsecured loan may come in many forms. Make sure you research the types of loans for bad credit and lenders available to you for an unsecured loan.  

Where Can You Get a  Secured Personal Loan?

Banks: traditional banks offer a wide range of secured loans, including mortgages, auto loans, and more. These institutions typically offer competitive interest rates and terms, but their qualification requirements may be stricter. Borrowers with bad credit scores might have a difficult time getting a bank loan. 

Credit Unions: credit unions, which are nonprofit financial institutions owned by their members, may also offer secured personal loans to borrowers with bad credit. They may have more flexible qualification requirements and lower interest rates than traditional banks. They may be some of the best secured personal loans you could get in terms of cost. 

Online Lenders: online loans have revolutionized the lending industry by offering quick and easy access to installment loans, including secured loans. The main advantage of online lenders is their convenience; you can apply for a personal loan from the comfort of your home or office at any time.

Advantages and Disadvantages

Advantages

Disadvantages

1. Lower Interest Rates: The best secured personal loans often have low interest rates because they are less risky for lenders.

1. Risk of Asset Loss: If a borrower cannot make repayments, they risk losing the asset used as collateral.

2. Higher Borrowing Limits: Because the lender has the assurance of collateral, borrowers can often secure larger loan amounts.

2. Potential Debt Cycle: If a borrower cannot repay the loan, they may need to take out more loans, potentially leading to a cycle of debt.

3. Longer Repayment Periods: Secured loans usually offer more extended repayment terms, making monthly payments more affordable.

3. Longer Approval Process: The process of assessing and accepting collateral can make the loan approval process longer.

4. Accessible with Lower Credit Score: As they are backed by collateral, secured loans may be available to those with poor or no credit history.

4. Additional Fees: There may be additional fees and charges associated with secured loans, such as appraisal fees, that are not typical with an unsecured loan.

5. Potential for Building Credit: Regular, on-time payments of a secured personal loan can help build a positive credit history.

5. Potential for Negative Impact on Credit Score: Failure to repay the loan or late payments can negatively affect the borrower’s credit score.

Legal Aspects of a Secured Personal Loan

Understanding the legal aspects of receiving credit approval via a secured personal loan is critical for borrowers with bad credit and lenders. These legalities, which involve foreclosure and repossession, provide safeguards for lenders, but they also mean potential risk and loss for borrowers if they are bad with making payments and default on the loan.

According to data from the Federal Reserve Bank of St. Louis, the delinquency rate on consumer loans, which includes secured loans like home equity loans, stood at 2.16% in Q2 2021. This number fluctuates over time due to factors like changes in the economy and consumer behavior.²

Loan Qualifications

Qualifying for a secured personal loan involves meeting certain requirements set by the lender. These generally include providing collateral, having a steady income, and meeting other credit and eligibility requirements. Many lenders may not even consider your creditworthiness, since the loan is secured by the asset. This is why many consider secured options to be good bad credit loans

Requirements for The Borrower

Secured personal loans for bad credit require the borrower to provide an asset as collateral. The value of this collateral must generally be equal to or greater than the amount being borrowed. Borrowers must also prove their ability to repay the loan, often through proof of income or a credit check.

Eligibility for a Loan

Eligibility typically requires the borrower to be of legal age, have a reliable source of income, and possess an asset suitable for use as collateral. The borrower’s credit history may also be considered. Some secured loans don’t consider the borrower’s credit score since the lender has the insurance of the collateral. This is why bad credit borrowers can get certain secured loans. 

Qualification Process

The qualification process usually involves a credit check, verification of income, and an appraisal of the asset being used as collateral. By paying everything on time, credit card users build their reputation and credit history and can become eligible for other types of borrowing.

Applying for a Loan

Applying for a secured personal loan is a process that requires careful preparation and understanding of the loan terms. This involves going through the loan application process, submitting necessary documents, and evaluating loan offers before accepting a loan agreement.

Loan Application Process

The application process for a secured personal loan usually involves completing a loan application form, which will require information about your income, employment, and the asset you’re using as collateral. You can usually complete an application in-person or online. 

Documentation Required

Applications typically require documentation including proof of income (like pay stubs or tax returns), proof of identity (like a driver’s license or passport), and documents relating to the asset being used as collateral (like a car title or home deed).

Evaluating Loan Offers

When evaluating loan offers, it’s crucial to compare interest rates, loan terms (how long you’ll have to repay the loan), any fees associated with the loan, and the amount of the monthly payment. It’s also a good idea to review the lender’s reputation and customer service.

Tips For Applying with Bad Credit

Borrowers may still qualify for emergency funding with bad or fair credit scores. However, your rates will likely be high, and you may not get a lot of money. Taking steps to improve your credit score can help you get more loan options with better terms in the future. 

Here are some tips on how to boost your bad credit score:

  • Pay bills on time: Consistency is key to boosting your credit score.
  • Reduce credit card balances: Aim to keep your credit utilization below 30%.
  • Check credit reports: Look for errors or inaccuracies  on credit reports and dispute them.
  • Limit new credit applications: Too many inquiries can lower your score.
  • Pay off debt: Focus on paying off smaller debts to reduce overall balances.
  • Keep old accounts open: Longer credit history can improve your score.

What Happens if I Default on my Loan?

The consequences of defaulting on any type of loan can be severe. Just one missed or late payment has the potential to negatively impact your credit reports for the next seven years! Furthermore, defaulting on a secured loan can be particularly severe due to the potential loss or repossession of the collateral. 

To avoid those negative repercussions and accumulating late fees that make getting out of debt even more difficult, it’s important to prioritize making timely payments on your loan. 

Alternative Options

For those who cannot or do not wish to take on a secured loan, there are various alternatives. These include unsecured loans, personal lines of credit, peer-to-peer lending, and credit cards.

Loan Type Collateral Required Interest Rates Amount You Can Borrow Impact on Credit Score Application Process
Unsecured Personal Loans No Typically higher than secured loans Depends on creditworthiness, income, and other factors Good payment history can improve credit score; missed payments can harm credit Application process for unsecured loans typically involves credit checks and proof of income
Personal Lines of Credit No Varies, can be higher than secured loans Depends on creditworthiness, income, and other factors Good payment history can improve credit score; missed payments can harm credit Typically involves credit checks and proof of income
Peer-to-Peer Lending No Varies, potentially lower than traditional lenders Depends on platform and individual lenders Good payment history can improve credit score; bad payment history can harm credit Online application, individual lenders choose whether to fund
Credit Cards No Typically higher than other loan types Credit limit set by issuer, based on creditworthiness Good payment history can improve credit score; missed payments can harm credit Application process varies by issuer, can often apply online
Home Equity Loan Yes (your home) Typically lower than unsecured loans A percentage of the equity you have in your home Good payment history can improve credit score; missed payments can harm credit and you risk losing your home Involves credit checks, an appraisal of your home and proof of income

Secured Loan FAQs

This is a type of loan that requires collateral, a valuable asset that the borrower pledges in order to back the loan. Using collateral is risky because the lender can take possession of the collateral in case of default. CreditNinja does not offer secured loans, but bad credit borrowers may be able to qualify for personal loans. We offer flexible credit requirements, so you don’t have to risk using collateral to get emergency cash.

A secured loan can hurt your credit if you fail to make your payments. Any loan or credit card you fail to pay on time could potentially lower your credit score.

You can usually still get a secured loan with a 500 credit score. However, it’s also possible to qualify for an unsecured personal loan. CreditNinja offers personal loans up to $5,000, and you don’t need perfect credit to qualify.

The easiest loan to get approved for is usually a payday loan, but they usually have very high interest rates and fees. CreditNinja personal loans can provide up to $5,000 with competitive rates. Our qualification requirements are flexible, so you may qualify despite having bad or fair credit.

Secured loan interest rates are set by the lender, based on various factors including the creditworthiness of the borrower, the value of the collateral, and market conditions. . However, you may still get competitive rates on unsecured loans by applying with CreditNinja. Our rates are competitive for your benefit, so you don’t have to stress about unaffordable repayment plans. . The lender benefits from the interest as it is their return for providing the loan.

The borrower is responsible for repayment of their bad credit loan. If the borrower is bad with making payments and defaults on the loan, the lender has the right to take possession of the collateral, sell it, and use the proceeds to pay off the loan. This can lead to the borrower losing their assets and negatively affecting their credit score.

Consider your ability to repay the loan, the value of the asset you’re using as collateral, the terms and conditions of the loan, including the interest rate and repayment schedule, and how taking out the personal loan will impact your overall financial situation.

A Note from CreditNinja

At CreditNinja, we recognize the dual nature of even the best secured personal loans: they can be powerful financial tools when borrowers need to get out of a bad financial situation, but they also come with potential risks. 

We urge our customers to familiarize themselves with local laws and regulations, seek legal advice if needed, and be aware of potential scams or predatory lenders. While an online secured personal loan can provide financial flexibility, it’s imperative to weigh the benefits against the risks. By being well-informed and cautious, you can effectively leverage secured personal loans for bad credit while safeguarding your financial wellbeing.

Sources: 

    1. The Fed – Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances
    2. Delinquency Rate on Consumer Loans, All Commercial Banks (DRCLACBS) | FRED | St. Louis Fed
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