While you may be able to qualify for unsecured loans with bad credit, you’ll typically pay a high interest rate on them. If you want better rates, you may want to apply for a secured loan with bad credit instead.

You’ll need to pledge collateral to qualify for the loan, and a major risk is that the lender can seize the asset if you miss payments. Consider the risks carefully before you apply for a loan.

In this guide, we’ll talk about the types of secured loans you can borrow, our top secured personal loan recommendations, and how to apply for one.  

What Are Secured Loans?

Secured loans refer to any type of loan that is backed by an asset. You’ll pledge a car, your home, a bank savings account or CD, a piece of art/jewelry/gold, or some other valuable form of collateral to the lender as security in case you fail to repay the loan as agreed. If you default on the loan, the lender can seize the collateral and sell it to recover the amount you owe.

For borrowers with bad credit, secured loans are easier to qualify for since the lender has collateral that can be used as a secondary source of repayment if the borrower doesn’t make all of his/her scheduled payments. 

With an unsecured personal loan, the lender usually evaluates your creditworthiness based on factors like your credit score, income, and debt-to-income ratio. If you default on an unsecured loan, the lender can’t seize your assets. 

The most common recompense an unsecured lender has is to report a delinquent loan to the borrower’s credit reports and refuse to lend to that borrower again, for a long time, if ever again.

A major benefit of borrowing a secured loan with bad credit is that you may be able to qualify for lower interest rates, higher loan amounts, and longer repayment terms, even if you don’t have good or excellent credit. This makes a secured loan a good choice for debt consolidation, home improvement, or any other purpose.

There are several types of secured loans to choose from based on your borrowing needs, and we’ve listed the most common ones below.  

Secured Personal Loan

A secured personal loan requires you to pledge a savings account, investment account, vehicle, or another valuable asset to borrow money. You can get a secured personal loan from a credit union, bank, or online lender.

You can typically borrow up to $50,000, and interest rates will depend on your creditworthiness, but they will usually be lower than the interest rates on unsecured bad credit personal loans.

Secured Home Equity Loan

A bad credit home equity loan allows homeowners to borrow against the equity in their home. The amount you can borrow will be based on the difference between your current mortgage balance and your home’s current market value.

Home equity loans are usually fixed-rate loans and are often known as second mortgages because they’re secured against your home.

An alternative to this is a home equity line of credit (HELOC), which is a second mortgage that is offered as a revolving line of credit that allows you to borrow cash at any time, as you need it, up to your HELOC credit (or borrowing) limit. 

Similar to a credit card, your payments are based only on the amount you’ve borrowed, and you can pay off the balance and reuse the funds, again and again for several years.  Most HELOCs must be re-evaluated and requalified for every 10-15 years.

Secured Auto Loan

car loan for bad credit is a type of secured loan. When applying for an auto loan, you can increase your chances of approval and secure a competitive rate by offering a larger down payment or applying with a co-signer.  

You may be able to secure an auto loan even with a credit score of 550 or less, but keep in mind that the borrowing costs can be higher.

Top Secured Loan Lenders for People With Bad Credit

When borrowing any type of bad credit loan, it’s important to do your homework by pre-qualifying with multiple lenders, comparing your loan offers, and choosing an option that aligns with your financial situation and budget.

To make this process easy for you, we reviewed 15 lenders offering secured loans with bad credit scores and chose the five best secured personal loans based on interest rates and fees, customer service, loan amounts, flexible terms, and ease of qualification and application.

Loan AmountsAPRRepayment TermsMinimum Credit Score
Navy Federal Credit Union$250-$50,0007.49%-18%12-60 monthsNA
Upgrade$1,000-$50,0008.49%-35.99%36-84 months580
Best Egg$2,000-$50,0008.99%-35.99%36-60 months600
First Tech Federal Credit Union$500-$500,000Starting at 3%Up to 96 monthsNA
OneMain Financial$1,500-$20,00018%-35.99%12-60 months500

5 Ways To Get a Secured Loan With Bad Credit

If you’re looking to get a secured loan with bad credit, here’s how the process generally works:

1. Improve Your Credit Score

Start by getting a copy of your credit report from all three major credit bureaus (Experian, Equifax, and TransUnion). Check your credit score and review your information on file to check for errors. You can dispute errors to have them removed.

There are other ways to improve your credit score, such as making on-time payments, paying down credit card balances to improve your credit utilization, and using a good mix of credit with revolving and installment debt.

Minimum credit score requirements vary by lender, but most lenders will generally need a FICO score of 580 or more.  

2. Save For a Larger Down Payment

If you’re applying for an auto loan, you can improve your chances of qualifying by putting down a larger down payment of at least 20% to 30%. A larger down payment will demonstrate financial responsibility and will make it easier to qualify for the loan.

Additionally, you’ll have more equity in the vehicle, reducing the chances of ending up with an upside-down car loan.

3. Consider a Co-Signer

You may also want to consider having a family member or friend co-sign the loan to increase your chances of approval. If you know someone with a good credit score, they can apply for a loan with you.

Keep in mind that the co-signer also takes on the responsibility to repay the loan if you run into financial trouble and can’t make loan payments, which can damage your personal relationships.

4. Research Lenders That Offer Secured Loans for Bad Credit

Not all lenders and loan products are the same. Your ability to get a secured loan with bad credit depends on the lender you choose. Some lenders may work with borrowers with a low credit score or a thin credit history.

Look for lenders with minimum credit score requirements or those that specify that they accept borrowers with all types of credit. Federal credit unions are also more likely to work with members with a low credit score if they have accounts in good standing.

Be sure to compare rates and consider any additional fees they may charge, such as origination fees, prepayment penalties, and late payment fees.

5. Gather Necessary Documents and Collateral

Once you’ve compared your loan options and picked a lender to work with, the next step is to prepare the loan application and submit the necessary documents. Generally, you’ll need to demonstrate your ability to repay the loan with documents like your pay stubs, employment history, tax returns, and information about your current debts.

You can also include a letter explaining your current credit issues and the reasons behind them to strengthen your application. Make sure you have all the information on hand before you start filling out the online application. The lender may ask for additional information if needed once they review the application.

Once your loan application is approved, you’ll have to sign the loan agreement to finalize the loan and get the funds.

“When applying for a secured loan, especially when you have less than perfect credit, the value and type of collateral may make the difference when it comes to getting approved,” explains Brad Reichert, founder and managing director of Reichert Asset Management.

“The better the quality and type of collateral, the better the chances you have of receiving approval. When it comes to security for the loan, the lender’s risk almost always goes down when the asset you post as security has historically appreciated in value over time versus depreciated,” shares Reichert.

Get a Secured Loan With Bad Credit

Even with a bad credit score, there are some options available to borrow money. However, not all lenders cater to borrowers with poor credit scores, so it’s important to pick the right lender to work with. Choose a lender that offers specific products for building credit or one with lenient eligibility requirements.

When applying for a secured loan with bad credit, be sure you understand the loan terms and the consequences of defaulting. Have a plan to repay the loan and set up autopay to ensure you don’t miss any monthly payments or incur late fees.