Secured Loans for People with Bad Credit

When people with bad credit need secured loans they are often forced to find alternative financing. Although a few lenders engage in bad credit lending, most borrowers need to turn to sources such as hard money loans from private investors or wait until they are able to improve their credit rating.
Secured loans require borrowers to use some type of asset as collateral. The most common assets include automobiles, real estate and business property. Some bad credit lenders will approve loan applications if the collateral asset is worth significantly more than the loan amount, while others require debtors to obtain a creditworthy co-signer.
Debtors should obtain a current credit report from each of the major credit reporting bureaus including: Equifax, Experian and Trans Union. Not all creditors report to each of the credit bureaus, so each report will have varying information.
Lending institutions review credit reports to determine borrowers' credit scores, payment history, income-to-debt ratio, number of delinquent or written-off accounts, and number of hard inquiries.
A hard inquiry is added to credit reports each time a person applies for credit. This can include secured and unsecured loans, home rentals, utility companies, automobile, homeowner or renter's insurance and even employment.
Hard inquiries remain on credit reports for two years. Banks generally decline loan applications when borrowers have four or more hard inquiries. In order to maintain a good FICO score, debtors should strive to keep hard credit inquiries to a maximum of three per year.
Consumers can obtain a copy of their credit report at no charge through AnnualCreditReport.com. This centralized credit reporting organization provides one credit report per year for each of the three credit bureaus. There is no fee and consumers are not required to subscribe to monthly credit monitoring services.
Bad credit debtors typically have a better chance of being approved for secured loans vs. unsecured loans. Secured loans are backed with valuable collateral which can be sold if debtors' default on their loan agreement.
Lenders can repossess the collateral and sell it to clear the debt. If the sale of the asset does not cure the outstanding balance, creditors can obtain a judgment or creditor lien which is reported to the credit bureaus. Judgments and liens remain on credit reports until the debt is satisfied and can prevent debtors from obtaining any type of financing for years to come.
Borrowers who have filed for personal bankruptcy or lost their home to foreclosure within the previous two years will find it exceptionally difficult to obtain financing through conventional lenders.
One option for borrowers with poor credit is to seek out hard money lenders. Hard money loans are provided through investment groups and private investors and are mainly used to buy houses and investment real estate or to start or expand business enterprises.
It is important to understand that hard money lender real estate loans are costly and should only be used as short-term financing. Most investors require a down payment of 30-percent or more and charge interest rates upwards of 20-percent. Debtors who obtain hard money loans should strive to refinance mortgages through a conventional home loan within a year or two.
Oftentimes, obtaining bad credit loans cause additional credit damage and can lead to repossession of purchased property. Borrowers should calculate the actual cost of the asset and determine if is absolutely necessary to purchase. In most cases, it is best for debtors to clear derogatory credit and improve FICO scores before applying for secured loans. Otherwise, they could lose the property and further damage their credit rating.

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