Obtaining secured loans with bad credit can be considerably more difficult than if you have good credit. However, with research and perseverance borrowers can locate poor credit lenders willing to give them a second chance.
Secured loans require borrowers to utilize some form of valuable asset as collateral. Assets might include real estate properties, vacant land, motor vehicles, water craft, or business equipment. Depending on the circumstances, amount of required funds and type of collateral, banks may require bad credit borrowers to obtain a creditworthy co-signer.
It is always a good idea to work toward improving credit scores prior to applying for secured loans. Not only is it more difficult to obtain any type of credit, borrowers also pay higher interest rates and application fees. If you haven't reviewed your credit report in awhile, now is the time to do so. Borrowers can obtain one complimentary credit report each year through AnnualCreditReport.com.
Each time borrowers apply for secured loans a hard inquiry is submitted to the three major credit reporting agencies including: Trans Union, Equifax and Experian. Hard inquiries remain on credit reports for two years, regardless of whether secured loans are approved or not. Creditors review many facets of credit reports including: income to debt ratio, number of hard inquires, past due payments, delinquent accounts and write-offs.
Borrowers with poor credit usually find it easier to obtain approval for secured loans than unsecured loans. Since collateral is used to secure the loan, creditors can repossess assets used to secure the note and sell it to pay off outstanding loan balances. However, banks are not in business to auction off assets, so it is best to clear up as much derogatory credit as possible prior to applying for secured financing.
Debtors with foreclosure, deed in lieu of foreclosure, short sale or bankruptcy may find it next to impossible to obtain secured loans through conventional banks. Instead, they might be forced to obtain financing through hard money lenders.
Borrowers with bad credit who wish to buy a home, but unable to obtain home loan approval might be able to obtain necessary funds through hard money lender real estate loans. Some real estate investors and investment groups provide hard money loans to borrowers able to provide a substantial down payment. Hard money loans should only be used for short-term financing with duration of one to two years.
Individuals with a poor credit rating who want to purchase a car might need to seek out buy here, pay here automotive dealers. These types of secured loans typically require borrowers to provide a large down payment and provide weekly or bi-monthly payments.
Car dealerships offering buy here, pay here financing typically charge higher prices for the automobile, along with higher interest rates. Careful consideration should be given to this type of secured loan because borrowers often owe more than the vehicle is worth, making it difficult to sell at a later time. On the other hand, if payments are made in full and on time, buy here, pay here secured loans can help debtors repair their credit.
With today's economic conditions credit is king. Individuals with high FICO scores and a solid record of timely payments can receive prime interest rates, while individuals with poor credit can be subjected to interest rates upwards of 25-percent.
Borrowers with poor credit should strive to clear negative credit and improve FICO scores long before applying for secured loans. However, if borrowers absolutely require a loan to purchase a home, make home improvements, pay college tuition or purchase a car, take time to shop around for the best rate. Then, make every effort to pay secured loan payments on time. After a year or so, consider refinancing to obtain a better rate of interest.
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Published on April 15, 2010 at 02:45 AM | Comments: 1