Why Do You Need a Bad Credit History Secured Loan?
- A secured loan is one in which the lender requires you to put up collateral that is equal or greater in value than the amount you borrow from the lender. The loan agreement will state that if you fail to repay your loan, the borrower can take the collateral to pay the debt. The loan is said to be secured because the collateral provides security for the lender. In many cases, you secure the loan with money held in a special savings account or certificate of deposit with the lender.
- The best way to repair a bad credit score is to begin putting positive credit history on your credit report again. Although bad credit history falls off the report after seven years, or 10 years in the case of some bankruptcies, you can lessen its effect more quickly by getting credit and using it responsibly in the meantime. If you cannot get a traditional loan, getting a secured loan can help you repair your credit. Make your payments on time every month to build a positive payment history and boost your credit score.
- If you need to borrow money and cannot get a traditional loan, a secured loan is an alternative. However, you need to have property with value to get a secured loan. One option, if you already have a certificate of deposit with a bank or credit union, is to get a loan secured by that CD. Another possibility is to put up your car or furniture as collateral for the loan. If you have collateral, you can often get a loan and use the money for any reason, including covering unexpected expenses or paying off more expensive debts such as payday loans.
- In general, secured loans have lower interest rates than their unsecured counterparts. This is because the lender assumes less risk with a secured loan than with an unsecured one. If you have bad credit history, you might be able to find a lender who will offer an unsecured loan, but the interest rates on these are likely to be significantly higher than if it were a secured loan. If you have something you can put up as collateral, doing this will decrease the interest you pay on your loan and will save you money.