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Secured Loans for People with Bad Credit

Aparna Iyer
Secured loans can help consumers avail a loan at a favorable rate of interest, despite the borrowers having a poor credit rating or an adverse credit history. However, it would be beneficial to know the pros and cons of the same.
For people with bad credit, secured loans can be procured more easily as compared to unsecured loans for bad credit since the latter is made available by lenders to consumers without any collateral. The absence of a collateral augments the risk inherent in lending to people with less-than-perfect credit.
If the borrower defaults, the lender cannot hope to recover the dues by selling the collateral. It can be safely assumed that lending to people with less-than-perfect credit gives the creditor some cushion in terms of ease of recovery. A credit report is an absolute must, when acquiring a secured loan.
With the details in hand, you are in the position to understand the form of bad credit you have, thereby also understanding as to what the lender observes in your profile. If you are not well acquainted with what the credit report spells, render help from a second charge broker.
He is an expert in the field, helping you digest the credit terms and registrations better. Before applying for a secured loan, make sure that you thoroughly research the various plans. This will aid you to understand and adopt a plan that suits your interest.
Companies are set up in order to lend the required sum to people with bad credit. However, due to the fact these companies provide loans to those who have bad credit registrations, the charges are on a relatively higher side. Though one may conclude that with concrete research, one may acquire a square deal with decent rates.


✦ People with bad credit generally find it difficult to avail loans at a reasonable rate of interest, since the rate of interest on a loan is inversely proportional to the creditworthiness of the borrower.
✦ Since people with bad credit have a poor credit rating and an adverse credit history, it may be difficult if not impossible, for such people to obtain an unsecured loan at a favorable rate of interest.
✦ A secured loan may be easily availed by people with bad credit, since the lender knows that the collateral may be used in lieu of the unpaid amount. For instance, a mortgage lender can always foreclose the home, and sell it off in an auction, and recover the dues in case the borrower fails to make good the borrowed sum.
✦ Another advantage of obtaining secured loans for bad credit is that, the borrower can expect to get a relatively large loan despite having less-than-satisfactory credit scores. For instance, the maximum amount of money that one can hope to avail in the absence of a collateral is around $100,000. This loan is generally repaid over a period of 5 years.
However, one can hope to procure around $250,000, if one avails secured personal loans for bad credit. Moreover, the repayment period of the loan is 10 years as against the 5-year repayment period of unsecured personal loans. For people with bad credit, a secured personal loan is definitely a better option.
✦ The interest rates on a secured loan are much lower, when compared to unsecured loans. Creditors tag it a risky affair, when lending a sum on such type of loans. It has to be understood that as secured loans are 'secured' against a property, i.e., either your house or your vehicle, unsecured loans are not secured against anything.
Thus, if a person with bad credit cannot repay the sum, the creditor would get nothing back. It is due to this reason that your credit history matter as creditors have a valid reason to look toward secured loans as a safe and lucrative option.


✦ One main disadvantages of a secured personal loan is, one is bound to lose the collateral if unable to repay the borrowed sum. For instance, if one avails a home equity loan (HEL), the chances of losing the home increases, especially if the prices drop. This is because the homeowner already has a mortgage on the house and avails an HEL in addition to it.
For instance, if one avails a home equity loan (HEL), the chances of losing the home increases, especially when the home prices drop. This is because the homeowner already has a mortgage on the house and avails an HEL in addition to the mortgage.
✦ Moreover, the consumer has bad credit implying that he/she finds it difficult to make good the financial obligations. Hence, it is only natural that the homeowner will find it impossible to repay the secured loan and end up losing the house.
✦ A foreclosure, as we all know, will result in the credit score of the consumer taking a hit. The higher your credit score, the more your score will be affected. Moreover, a foreclosure will stay on record for 7 years thus, making it impossible for the consumer to avail another loan in the immediate future.
It is evident that there are advantages as well as disadvantages of secured personal loans. For people with bad credit, this type of loan may be the only option, since lenders have become wary of lending money to people with less-than-perfect credit.
Ultimately, good credit scores hold the key to availing any loan with ease. Hence, people should focus on building their credit scores, thereby improving their credit history.