Can You Get a Secured Car Loan with Bad Credit?

A person with bad credit may be able to obtain secured car loans for the purpose of purchasing a new or used car. Obtaining a secured car loan requires some collateral or other asset necessary to secure the car loan and provide a guarantee against loan default by the borrower. The amount of collateral required to secure the loan is determined by the borrower and stated in the terms of the contract.

Secured versus Unsecured Loans

Secured car loans differ from unsecured loans in that an unsecured loan usually requires a low or no down payment and can be secured by the creditworthiness of the borrower. Because a person with bad credit is deemed a questionable credit risk, unsecured loans are difficult to obtain. The use of a secured loan however gives a bad credit risk another opportunity to rebuild their credit and obtain a car loan.

Higher Interest Rates for Secured Loans

It should be noted that secured car loans, when available, may carry a higher interest rate than a comparable unsecured car loan.  This higher interest rate is seen as a way to compensate the lender for any potential loss that may arise due to loan default.

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