Yes, you may be able to get a secured loan with 500 credit score. However, be aware that secured personal loans for low credit scores often come with very high interest rates, low loan amounts, and extremely brief repayment terms. Because of these factors, bad credit secured loans are often considered high-risk funding. According to Experian, Americans owe approximately $342.1 billion in secured personal loan debt.1
A secured loan is a type of personal loan that requires collateral. The purpose of the collateral is to serve as a form of income that can cover the funding amount should the borrower become unable to repay the loan on their own. Since collateral essentially replaces traditional income when it comes to loan approval, lenders of secured loans are typically able to allow consumers to borrow money even if they have a low credit score or a poor credit history.
Types of Secured Personal Loans
Some common types of secured loans available for consumers who may not have the best credit scores include car title loans, and home equity loans. Car title loans are a type of secured loan where the borrower uses their vehicle title as collateral. When a consumer gets a title loan the lender will sign onto the vehicle title as a lienholder, giving them partial ownership of the vehicle for the duration of the loan terms. If the borrower fails to repay their title loan, the lender then has the right to repossess their vehicle.
Home equity loans are a type of secured loan where the borrower uses their home or real estate property as collateral. Home equity loans may be out of reach for some bad credit borrowers since it’s required that the borrower own their home. Therefore, renters wouldn’t be able to utilize a home equity loan or a home equity line of credit.
Credit Score Requirements for Secured Loans
Typically, there is no minimum credit score requirement borrowers must meet in order to be approved for a secured loan. Lenders usually care more about the equity in the collateral over the borrower’s income or credit history. This is why borrowers with a poor credit score often seek out secured loans. However, just like with any other type of loan, it is important to research your options, consider alternatives, and establish a financial plan before filling out an application.
Some non-loan alternatives bad credit consumers may want to consider before applying for a loan are:
- Using funds from a savings account
- Asking a close friend or family member for a small loan
- Getting a temporary part-time job to earn additional income
- Have a garage sale to get some extra cash
Other Ways to Borrow Money
As an alternative to secured personal loans, there are also unsecured personal loans. An unsecured personal loan is a kind of funding that uses the borrower’s income, credit score, and financial history to determine loan approval.
Borrowers may seek out unsecured loans via financial institutions like a:
- Direct lender
- Credit union
- Bank
Head over to the CreditNinja dojo to learn more about getting a bad credit personal loan, handling monthly payments, and more!
References:
1. The Average Personal Loan Balance Rose 7% in 2022 | Experian
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