Introduction
A secured loan for bad credit can be a lifeline for borrowers struggling to get approved for traditional financing.
Instead of being denied based on your credit score, a secured loan allows you to use an asset—such as a car, savings, or home equity—as collateral to secure funding. This reduces the lender’s risk and increases your chances of approval, often with lower interest rates and higher loan amounts than unsecured loans.
If you’re looking for a full breakdown of how secured loans work and their benefits, visit our Complete Guide to Secured Loans before exploring lender options.
In this guide, we’ll cover everything you need to know about the best secured loans for bad credit, lender comparisons, and how to improve your chances of approval.
Key Takeaways
- Secured loans require collateral, such as a car, savings account, or home equity.
- Lenders offer lower interest rates and higher loan amounts compared to unsecured loans.
- Ideal for borrowers with bad credit who struggle to get approved for traditional financing.
- Approval is based on collateral value, income, and repayment ability, not just credit score.
- Failure to repay can result in losing your collateral, making responsible borrowing essential.
- Top secured loan lenders include OneMain Financial, Upgrade, Navy Federal Credit Union, LightStream, and Wells Fargo.
How Secured Loans for Bad Credit Work
Secured loans for bad credit provide an alternative for borrowers who have trouble qualifying for traditional financing.
By using collateral—such as a car, savings, or home equity—borrowers reduce the risk for lenders, making approval easier even with a low credit score.
Unlike unsecured loans, where approval depends heavily on credit history, secured loans prioritize the value of the collateral. This allows borrowers to access:
- Lower interest rates compared to unsecured personal loans
- Higher loan amounts, depending on the collateral’s value
- More flexible repayment terms, making payments more manageable
However, secured loans come with risks. If a borrower fails to repay, the lender has the legal right to seize the collateral to recover losses. This makes it important to borrow only what you can afford to repay.
Best Secured Loans for Bad Credit: Top Lenders and Loan Options
Not all secured loans are the same. Lenders have different eligibility requirements, loan terms, and interest rates, making it important to compare options before applying.
Below are some of the best secured loan lenders for bad credit, along with their loan features, collateral requirements, and key benefits.
1. OneMain Financial
- Loan Amounts: $1,500 – $20,000
- APR Range: 18.00% – 35.99%
- Collateral Accepted: Vehicles (car title loans)
- Best For: Borrowers with bad credit who need quick funding
- Repayment Terms: 24 to 60 months
OneMain Financial specializes in personal loans for borrowers with poor credit, making it one of the most accessible lenders for those who have been denied by traditional banks.
Their secured loan option allows borrowers to use a vehicle as collateral, which can improve approval odds and potentially lead to better interest rates than an unsecured loan.
Unlike many online lenders, OneMain Financial operates physical branches, allowing applicants to meet with loan officers in person. This can be an advantage for borrowers who prefer face-to-face assistance during the loan process.
However, OneMain Financial’s interest rates are on the higher side, making it important for borrowers to ensure they can manage the repayment terms before taking out a loan.
2. Upgrade
- Loan Amounts: $1,000 – $50,000
- APR Range: 8.49% – 35.99%
- Collateral Accepted: Personal assets, vehicles
- Best For: Borrowers looking for lower APRs and flexible repayment terms
- Repayment Terms: 24 to 84 months
Upgrade is an online lender offering both unsecured and secured loans, but their secured loan option can be a good choice for borrowers with bad credit looking for lower APRs.
They accept personal assets and vehicles as collateral, providing a wider range of options than lenders who only accept car titles or savings accounts.
A key advantage of Upgrade is its flexible repayment terms, which range from two to seven years.
This allows borrowers to choose between smaller monthly payments over a longer period or faster repayment with higher monthly amounts.
However, borrowers should be aware that APR rates can still be high depending on creditworthiness, and approval is not guaranteed solely based on collateral.
3. Navy Federal Credit Union
- Loan Amounts: $250 – $100,000
- APR Range: Starting at 2.05%
- Collateral Accepted: Savings accounts, certificates of deposit (CDs)
- Best For: Military members and their families
- Repayment Terms: Varies based on loan type
Navy Federal Credit Union (NFCU) offers some of the lowest APRs available on secured personal loans, but there’s a catch—it’s only available to military members, veterans, and their families.
If you qualify, you can secure a loan using your savings account or certificate of deposit (CD), giving you access to extremely low rates compared to traditional secured loans.
A significant advantage of NFCU secured loans is that they help borrowers build credit while still maintaining their savings balance.
Since the savings account or CD continues earning interest while being used as collateral, this option is one of the least risky ways to secure a loan.
However, borrowers must be aware that funds in the savings account or CD will be frozen until the loan is fully repaid.
4. LightStream
- Loan Amounts: $5,000 – $100,000
- APR Range: 6.99% – 24.99%
- Collateral Accepted: Various assets
- Best For: Borrowers looking for large loan amounts
- Repayment Terms: 24 to 144 months
LightStream, a division of Truist Bank, is one of the best lenders for high-income borrowers who need large loan amounts at competitive rates.
While they offer both secured and unsecured loans, their secured loans require substantial collateral, such as high-value assets or home equity.
One of LightStream’s biggest advantages is that it offers some of the lowest interest rates available, but only to borrowers with strong financial backgrounds.
They also provide longer repayment terms, going up to 12 years, which makes large loans easier to manage.
However, LightStream’s strict approval requirements make it less ideal for those with very low credit scores or limited income stability.
5. Wells Fargo
- Loan Amounts: $3,000 – $100,000
- APR Range: 5.99% – 22.99%
- Collateral Accepted: Savings accounts, CDs
- Best For: Existing Wells Fargo customers
- Repayment Terms: Up to 84 months
Wells Fargo is one of the few traditional banks still offering secured personal loans, but they are generally only available to existing Wells Fargo customers.
Borrowers can secure a loan by using a savings account or CD as collateral, similar to Navy Federal Credit Union’s secured loan option.
One of the main benefits of Wells Fargo secured loans is their lower APRs and flexible repayment terms. Borrowers with a strong banking history at Wells Fargo may also receive better loan terms and faster approval.
However, their secured loans are not widely advertised, meaning applicants may need to visit a branch or speak with a loan officer to explore their options.
Which Lender is Right for You?
Lender | Best For | Collateral Required | Loan Amounts | APR Range |
OneMain Financial | Borrowers with bad credit needing quick funds | Car title | $1,500 – $20,000 | 18.00% – 35.99% |
Upgrade | Borrowers looking for lower APRs | Personal assets, vehicles | $1,000 – $50,000 | 8.49% – 35.99% |
Navy Federal Credit Union | Military members and families | Savings accounts, CDs | $250 – $100,000 | Starting at 2.05% |
LightStream | Borrowers needing large loan amounts | Various high-value assets | $5,000 – $100,000 | 6.99% – 24.99% |
Wells Fargo | Existing Wells Fargo customers | Savings accounts, CDs | $3,000 – $100,000 | 5.99% – 22.99% |
Each lender has different loan limits, interest rates, and collateral requirements.
The best choice depends on your financial situation, the collateral you can provide, and the loan terms that fit your needs.
How to Apply for a Secured Loan with Bad Credit
Applying for a secured loan with bad credit requires careful preparation.
While secured loans are easier to qualify for than unsecured loans, lenders still assess factors like income, collateral value, and ability to repay before approving an application.
Here’s a step-by-step guide to help you navigate the application process and increase your approval chances.
Step 1: Determine Your Loan Needs
Before applying, ask yourself:
- How much money do you need? Borrow only what you can afford to repay.
- What will you use as collateral? Choose an asset that meets the lender’s requirements.
- How soon do you need the funds? Some lenders offer same-day funding, while others take longer.
- What repayment term works best for you? Shorter terms mean higher payments but lower interest costs, while longer terms mean smaller payments but more interest over time.
Understanding your financial needs before applying will help you select the right lender and loan type.
Step 2: Check Your Credit Score
Even though secured loans focus on collateral, lenders still review your credit score to assess risk. Knowing your score in advance helps you:
- Identify lenders that fit your credit profile (some lenders have minimum credit score requirements).
- Check for errors on your credit report and correct them before applying.
- Avoid unnecessary rejections by applying only to lenders that align with your financial situation.
If your credit score is below 580, consider improving it by paying down existing debt or making on-time payments before applying.
Step 3: Compare Lenders and Loan Terms
Not all lenders offer the same terms, even if they accept bad credit borrowers. When comparing secured loan options, look at:
- Loan amounts: Minimum and maximum limits
- Interest rates: Lower is better, but rates depend on creditworthiness
- Collateral requirements: Some lenders only accept vehicles, while others accept savings accounts or other assets
- Repayment terms: Short-term vs. long-term options
- Fees: Origination fees, late fees, and prepayment penalties
Example: If you need $10,000 and want the lowest possible interest rate, Navy Federal Credit Union (for eligible members) may be a better option than OneMain Financial, which has higher APRs.
Step 4: Gather Required Documents
- Lenders will ask for documents to verify your identity, income, and collateral ownership. Be prepared to provide:
- Government-issued ID (driver’s license, passport)
- Proof of income (pay stubs, tax returns, bank statements)
- Collateral documentation (vehicle title, savings account statement, home appraisal)
- Proof of residence (utility bill, lease agreement)
Having these documents ready speeds up the approval process and reduces delays.
Step 5: Submit Your Loan Application
Most lenders allow online applications, but some require in-person visits (e.g., OneMain Financial and Wells Fargo). When filling out your application:
- Be accurate with personal and financial details.
- Ensure your collateral meets the lender’s requirements.
- Double-check all information before submitting to avoid rejections due to errors.
Some lenders offer prequalification, allowing you to see potential loan offers without affecting your credit score.
Step 6: Wait for Approval and Collateral Evaluation
Approval time varies by lender:
- Online lenders like Upgrade may provide a decision within 24 hours.
- Traditional banks like Wells Fargo may take a few days to process applications.
- Lenders requiring collateral appraisal (such as car title loans) may take longer.
During this stage, the lender assesses the value of your collateral to ensure it meets the loan requirements.
Step 7: Review Loan Terms Before Accepting
Once approved, carefully review:
✔️ Interest rate and total loan cost
✔️ Monthly payment amount and due date
✔️ Repayment period and early payoff options
✔️ Collateral terms and repossession policies
Never sign a loan agreement without fully understanding the terms. If anything seems unclear, ask the lender for clarification.
Step 8: Receive Funds and Begin Repayments
Once you accept the loan terms:
- Funds are deposited into your account (timing varies by lender).
- Repayments start according to the agreed schedule (weekly or monthly).
- Set up automatic payments to avoid late fees and potential damage to your credit score.
How to Increase Your Approval Chances
If you want to improve your chances of getting approved with better loan terms:
✔️ Offer a valuable asset – Lenders prefer collateral with a stable value, such as savings accounts or high-value vehicles.
✔️ Choose a lender that specializes in bad credit loans – Some lenders are more flexible than others.
✔️ Apply for a smaller loan amount – Asking for less reduces lender risk.
✔️ Consider a co-signer – A co-signer with better credit can strengthen your application.
✔️ Reduce existing debt – Lowering your debt-to-income ratio can make approval easier.
A secured loan can be an effective way to get financing with bad credit, but it’s essential to borrow responsibly and understand the risks involved.
Alternative Financing Options for Borrowers with Bad Credit
Secured loans are a great option for borrowers with bad credit, but they’re not the only choice.
If you’re hesitant to use collateral or want to explore other ways to secure funding, several alternatives may work better for your situation.
Below are alternative financing options, along with their benefits and potential drawbacks.
1. Credit Union Loans
How They Work:
Credit unions often offer personal loans with more flexible approval criteria compared to traditional banks. Many credit unions provide secured and unsecured loans at lower interest rates, and they may be more willing to approve borrowers with bad credit if they have a history of responsible banking.
Pros:
Lower interest rates than traditional banks
More lenient credit requirements
Personalized service and local decision-making
Cons:
Must be a credit union member to apply
Loan amounts may be smaller than secured loans
Some credit unions require savings deposits before loan approval
Best for: Borrowers who are credit union members or willing to join one and prefer a relationship-based lending approach.
2. Peer-to-Peer (P2P) Lending
How It Works:
Peer-to-peer lending platforms connect borrowers directly with individual investors rather than banks. Borrowers submit loan applications, and investors fund the loan based on risk assessment.
Popular P2P lending platforms include:
- LendingClub
- Prosper
- Upstart
Pros:
- Loans may be available for borrowers with lower credit scores
- Competitive interest rates based on risk level
- Online application with quick funding
Cons:
- Interest rates may be higher for bad credit borrowers
- Not all applications receive full funding
- Fees may apply for loan origination or late payments
Best for: Borrowers who want to avoid traditional banks and prefer an alternative online lending platform.
3. Secured Credit Cards
How They Work:
A secured credit card works similarly to a secured loan, but instead of receiving a lump sum of cash, borrowers put down a refundable deposit that serves as their credit limit. Over time, responsible use can help build or repair credit, making future borrowing easier.
Pros:
- Helps improve credit score with responsible use
- Lower risk than traditional secured loans
- No need for income verification in most cases
Cons:
- Requires an upfront cash deposit
- Low credit limits compared to personal loans
- Some cards have high fees
Best for: Individuals who need to build or rebuild credit before applying for larger loans.
4. Co-Signed Loans
How They Work:
A co-signed loan allows borrowers with bad credit to qualify for financing by adding a co-signer with good credit. The co-signer takes equal responsibility for the loan, reducing risk for the lender.
Pros:
- Lower interest rates due to co-signer’s strong credit
- Higher approval chances for borrowers with bad credit
- Can help improve credit score with on-time payments
Cons:
- Co-signer is responsible if the borrower fails to repay
- Could damage both parties’ credit if payments are missed
- Not all lenders accept co-signers for secured loans
Best for: Borrowers who have a trusted family member or friend with good credit willing to co-sign.
5. Home Equity Loans and HELOCs
How They Work:
Homeowners with equity in their property can borrow against their home’s value through a home equity loan (lump sum) or a home equity line of credit (HELOC).
These loans typically offer lower interest rates than personal loans but require using the home as collateral.
Pros:
- Lower interest rates than most personal loans
- Large borrowing amounts available
- Flexible repayment terms
Cons:
- Risk of foreclosure if you cannot repay
- Requires sufficient home equity
- Longer approval process
Best for: Homeowners who need larger loan amounts at lower rates and are comfortable using their home as collateral.
6. Payday Alternative Loans (PALs)
How They Work:
Some credit unions offer Payday Alternative Loans (PALs), which are small-dollar loans designed as a safer alternative to payday loans.
These loans typically have lower fees and interest rates and must be repaid within a short period.
Pros:
- Lower interest rates than traditional payday loans
- Fast approval and funding
- Regulated by the National Credit Union Administration (NCUA)
Cons:
- Low loan amounts (usually up to $2,000)
- Short repayment terms (1 to 12 months)
- Requires credit union membership
Best for: Borrowers who need small, short-term loans but want to avoid payday loan traps.
7. Employer-Based Loan Programs
How They Work:
Some employers offer paycheck advance programs or employee loans as a benefit to workers.
These programs allow employees to borrow small amounts against their future paycheck, often at little to no interest.
Pros:
- No credit check required
- Fast approval and direct paycheck deductions
- Interest-free or low-cost borrowing options
Cons:
- Loan amounts are typically small
- Limited to employers who offer this benefit
- Reduces future paychecks
Best for: Employees who need short-term financial relief without high-interest borrowing.
Which Alternative is Best for You?
Alternative Loan Option | Best For | Main Benefits | Potential Downsides |
Credit Union Loans | Credit union members | Lower rates, flexible approval | Membership required, smaller loan limits |
Peer-to-Peer Lending | Borrowers seeking online funding | May approve bad credit applicants | Higher rates for bad credit, funding not guaranteed |
Secured Credit Cards | Credit-building | Improves credit with responsible use | Requires a security deposit, low limits |
Co-Signed Loans | Borrowers with a co-signer | Lower rates, better approval chances | Co-signer is responsible for repayment |
Home Equity Loans/HELOCs | Homeowners | Low rates, large loan amounts | Risk of foreclosure, longer approval process |
Payday Alternative Loans (PALs) | Small-dollar emergency loans | Lower rates than payday loans | Limited availability, short terms |
Employer-Based Loans | Employees with financial hardship | No credit check, quick access | Reduces future paychecks |
Final Thoughts on Alternative Financing Options
Secured loans for bad credit can be a useful tool, but they are not the only option. If you:
- Do not want to risk collateral, consider credit union loans, peer-to-peer lending, or co-signed loans.
- Need to build or repair credit, a secured credit card can help establish positive payment history.
- Own a home with equity, a home equity loan or HELOC may offer lower interest rates and larger loan amounts.
- Need a short-term emergency loan, consider Payday Alternative Loans (PALs) or employer-based loan programs.
Choosing the right financing option depends on your financial situation, borrowing needs, and risk tolerance.
Carefully compare your choices and ensure you can meet repayment terms before committing to any loan.
Key Loan Terms and FAQs
When applying for a secured loan with bad credit, understanding key loan terms can help you navigate the process and avoid costly mistakes.
If you’re unfamiliar with loan-related terminology, you can refer to our Financial Terms Glossary for clear definitions.
Below, we’ll define the most important loan-related terms and answer common questions borrowers have about secured loans.
Understanding Key Loan Terms
1. Collateral
Collateral is the asset you pledge to secure a loan. If you fail to repay, the lender has the right to take and sell the collateral to recover their money.
✔ Examples: Car title, savings account, home equity, certificates of deposit (CDs).
✔ Why It Matters: The type of collateral you offer affects loan approval, interest rates, and loan amounts.
2. Loan-to-Value (LTV) Ratio
LTV ratio measures how much you can borrow based on the value of your collateral.
✔ Formula:
LTV=Loan AmountCollateral Value×100LTV = \frac{\text{Loan Amount}}{\text{Collateral Value}} \times 100LTV=Collateral ValueLoan Amount×100
✔ Example: If your car is worth $10,000, and the lender offers a loan up to 80% LTV, you can borrow $8,000.
✔ Why It Matters: Lenders use this ratio to determine how much risk they’re taking. Higher LTVs may lead to stricter terms or higher interest rates.
3. Annual Percentage Rate (APR)
APR represents the total cost of borrowing, including interest rates and lender fees.
✔ Why It Matters: A lower APR means you pay less over time. Secured loans often have lower APRs than unsecured loans due to reduced lender risk.
✔ Example: If you borrow $5,000 with a 10% APR over 3 years, your total repayment will be $5,791.
4. Loan Term
The loan term refers to how long you have to repay the loan.
✔ Shorter Terms (12-36 months): Higher monthly payments, lower total interest.
✔ Longer Terms (48-84 months): Lower monthly payments, higher total interest.
✔ Why It Matters: Longer terms reduce monthly payments, but you pay more interest overall.
5. Prepayment Penalty
A prepayment penalty is a fee charged for paying off a loan early. Some lenders impose this fee because they lose interest payments when you pay off a loan ahead of schedule.
✔ Why It Matters: If you plan to repay early, look for lenders with no prepayment penalties.
6. Default & Repossession
If you fail to make payments, the lender may:
✔ Report late payments to credit bureaus, hurting your credit score.
✔ Seize and sell your collateral if payments remain unpaid.
✔ Why It Matters: Borrow only what you can afford and always understand the lender’s repossession policies before signing.
Frequently Asked Questions (FAQs)
1. Can I Get Approved for a Secured Loan with Bad Credit?
Yes. Since secured loans use collateral, lenders are more willing to approve borrowers with low credit scores. However, your income, collateral value, and repayment ability still play a role in approval.
2. Who Offers the Best Secured Loans?
The best lender depends on your collateral type and loan needs:
✔ OneMain Financial: Best for borrowers with bad credit needing car title loans.
✔ Upgrade: Best for lower APRs and flexible repayment.
✔ Navy Federal Credit Union: Best for military members using savings as collateral.
✔ LightStream: Best for large loan amounts with competitive APRs.
✔ Wells Fargo: Best for existing customers using savings accounts as collateral.
3. What Credit Score is Needed for a Secured Loan?
There is no fixed minimum since secured loans depend more on collateral value. However:
✔ 580+ Credit Score: Better rates and higher approval chances.
✔ Below 580: May still qualify but may face higher APRs or stricter loan terms.
4. Can I Be Denied for a Secured Loan?
Yes, even with collateral, a lender can deny your application for reasons such as:
✔ Insufficient collateral value (not worth enough to secure the loan).
✔ Low income or high debt-to-income ratio (risk of default).
✔ Past loan defaults or bankruptcies on your credit history.
To improve approval odds, offer high-value collateral and show stable income.
5. What Happens If I Can’t Repay My Secured Loan?
✔ Missed payments can hurt your credit score.
✔ Lender may repossess and sell your collateral.
✔ Some lenders allow restructuring or payment deferrals—contact them before missing a payment.
6. How Quickly Can I Get a Secured Loan?
Approval time varies by lender:
✔ Online lenders (Upgrade, LightStream): 1-2 business days.
✔ Banks & credit unions: 3-7 business days.
✔ Car title loans (OneMain Financial): Same-day funding possible.
7. Can I Use a Secured Loan to Pay Off Debt?
Yes, many borrowers use secured loans for debt consolidation. However, ensure the new loan offers lower interest rates than your current debts.
✔ Good Idea: If you get a lower APR secured loan to replace high-interest debt.
✔ Bad Idea: If you risk losing collateral while still struggling to make payments.
8. Is a Secured Loan Bad for My Credit?
A secured loan can help or hurt your credit depending on how you manage payments:
✔ Helps Credit: On-time payments improve your score over time.
✔ Hurts Credit: Late or missed payments damage your score.
Final Thoughts
Understanding key loan terms helps borrowers make informed decisions and avoid costly mistakes.
✔ Compare lenders, loan terms, and APRs before applying.
✔ Ensure collateral is valued correctly and meets lender requirements.
✔ Only borrow what you can afford to repay.
A secured loan can be a great financial tool if managed responsibly, but it’s essential to understand the risks before committing.
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