Tips for getting a bad credit secured loan
10th August 2010
Getting a secured loan when you have bad credit, requires debtors to seek out lenders who are actually willing to provide financing to them. Whilst some banks might offer bad credit loans, most borrowers will need to find alternatives or instead implement strategies in order to improve their FICO scores. Borrowers will also need to remove any negative accounts that have been reported to credit bureaus.
“Secured loans are backed by the implementation of some kind of collateral. Collateral usually consists of real estate or business equipment, and some times vehicles. Some creditors will grant the approval of a loan based solely on the type of collateral offers, whilst others might require debtors to obtain a qualified co-signer.
It is always beneficial if you, as a borrower, obtain a current credit report from each credit reporting bureau, before you apply for your secured loan.
Lenders will take credit reports to review your DICO score, your previous payment history, income to debt ratio, the number of hard enquiries as well as your number of delinquent or written-off accounts. You should make sure you know yourself precisely what condition your credit report is in.
A lot of people fail to realise that every time they apply for credit, a hard inquiry is then reported to these credit bureaus. Hard inquiries are not limited solely to loan activity, however. Instead, these can include credit checks for employment, the leasing of homes, vehicle insurance or utility companies.
These hard inquiries will remain on your credit report for just two years, and lenders will typically decline loan applications when debtors have more than five hard inquiries on their report.
A good rule to stick by is to keep hard credit inquiries to an absolute minimum, with a maximum of three per year.
Debtors could also obtain a complimentary copy of their credit reports from the three credit bureaus used, from websites that offer this service for free.
If a consumer has poor credit, they will usually have a better chance of obtaining the approval they need for these secured loans. This is because the secured financing is backed by collateral, and this collateral can be sold if the debtors default on payment of their loan.
If the sale of the asset does not satisfy the balance that is left outstanding, creditors might obtain a judgement for the balance. This is something that remains on credit reports until the debt is fully repaid. Having this on your credit report could potentially stop borrowers from getting any kind of financing in the future.
Debtors who have lost their home to foreclosure, ie, having it taken away by the agency, will find it pretty much impossible to take out another secured loan. The same is true if they have filed for bankruptcy within the previous two years.
There are many things you should consider before getting this kind of loan, as it’s something you shouldn’t enter into lightly.
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