Find out the benefits of getting a secured loan with bad credit.
Having bad credit can make it difficult to access finance when you need it, but if you’re in that situation you still have some options to choose from. You have both secured and unsecured bad credit loans available to you, but lower interest rates and fees can be found if you’re able to offer security. Lenders may also be more willing to approve you as the loan is less of a risky venture. Learn more about taking out a secured loan as a bad credit borrower below.
What is a secured bad credit loan?
These loans can be used to purchase a new vehicle or can be taken out if you already have an asset to offer as security. If you already have an asset, such as a vehicle, you can generally use the loan for any purpose.
Security is usually a vehicle, such as a car, motorbike or caravan, but can also be boats, jewellery or something similar. Interest rates on these loans can be more competitive than unsecured loans. People who may not be eligible for an unsecured loan can have a better chance of being approved for a secured loan.
How can you get a secured loan with bad credit?
Getting a secured loan isn’t difficult as there’s a variety of lenders in this space. Typically, the following process will apply:
- Go through the offerings of bad credit loan providers and compare the fees, rates and features.
- Establish if your credit history, income and employment is in line with the requirements of the lender you want to apply with.
- Find out how much you’ll have to repay each month, and check if the repayments suit your budget.
- If you feel you can keep up with the repayments, you can submit your application online.
- When you’re approved, you have to accept the terms and conditions before the lender send you your loan, which is usually transferred straight into your account.
Types of secured bad credit loans
The kind of secured bad credit loan you can get depends on the kind of collateral you provide, but generally you’ll have the choice of:
- Car loans. If you’re looking to purchase a new or used car, you can use the car to secure the loan and receive a lower rate from the lender. These loans may have restrictions as to the type of car you can buy and what you can do with the loan amount.
- Home equity loans. If you have equity in your home you can consider getting a home equity loan where the equity you hold works as collateral.
- Secured personal loans. You can also consider getting a secured personal loan. This loan is similar to the above in that you can purchase an asset such as a car and use it as security, but you also have the option to use an existing asset as collateral. This includes a car, boat, caravan, or motorbike, and some lenders even let you use jewellery or any other high-cost asset.
How can you compare bad credit secured loans?
Going through the following should give you a good indication of what to expect when comparing your options.
- Loan amount. The minimum and maximum you can borrow varies from one loan to the next. The maximum you can borrow also depends on the security you provide along with your ability to repay the loan.
- Loan term. The loan term of secured bad credit loans also varies depending on the loan you choose. While a personal loan might offer terms of no more than 12 months, a car loan could give you up to five or seven years, and you could get even longer with a home equity loan.
- Interest rate. You’ll generally have the option of a fixed or variable rate, but as these are bad credit loans, expect the rate to be higher than with other forms of credit.
- Flexibility in repayments. Find out if the loan you lets you make weekly, fortnightly, or monthly repayments as per your needs. Also see if any early repayment penalties or extra repayment fees apply.
- Use funds for any purpose. Unless you’re applying for a car loan to purchase a car, you can use the funds from secured loans for just about any legitimate purpose.
- Building credit. Getting a bad credit loan gives you the means to repair your credit history. You can do this by ensuring that you make your ongoing payments on time.
Is there anything to keep in mind before applying?
If you’ve decided you wish to apply for secured bad credit loan, you might want to think about the following before you apply:
- Borrow according to your budget and don’t apply if you will have trouble repaying the loan.
- Go through the loan’s terms and conditions to check just how much you could end up paying in fees and charges.
- Don’t agree to take on extras like loan insurance until you have gone through the PDS.
- While short terms can have you making in higher repayments, you end up paying less in the form of interest. This means shorter terms can lead to savings on interest
- If you’re considering a car loan, account for the car’s depreciation in value over time.
The eligibility criteria you need to meet
Applying for any kind of loan requires that you meet some eligibility criteria, and this is no different when it comes to secured bad credit loans. You must be over 18 years of age, you must be a permanent Australian resident or an Australian citizen, and you must have a regular source of income. You need to also have details of the collateral you want to secure the loan with.
Applying for a secured loan will require that you undergo an identity verification process, and you’ll also have to provide details about your employment and existing financial situation.
Have more questions about these loans?
How quickly can I get a secured bad credit loan?
Some lenders inform you of your application’s status almost immediately after you submit your application. While some lenders can give you access to funds on the same day or by the next business day after approval, you could have to wait longer for others.
How can I apply for such a loan?
You can apply for one of these loans online. Lenders also give you the option of applying over the phone and in-store when physical locations are available.
Can I apply for a secured loan if I receive Centrelink payments?
Yes, some lenders accept applications from individuals who receive Centrelink payments.