Qualifying for a Certificate-Secured Loan with Bad Credit

Secured loans are a good option if you have bad credit because they are less risky for the lender. This means you will have lower interest rates than if you opted for an unsecured loan. Using collateral, a secured loan guarantees the lender will be paid for the loan even if you default. A certificate-secured loan allows you to essentially place cash as collateral as opposed to an asset. You will place the funds in the form of a certificate with the lender, and the certificate will earn dividends. This makes the loan very affordable if you qualify.

Reduce Risk to the Lender

If you have bad credit, you will have a better chance of qualifying for a secured loan than an unsecured loan. The loan is always less risky to the lender if it is secured. Remember: your collateral will be seized if you default. Protect yourself against default by curbing spending and building an emergency fund. However, there are always circumstances out of your control that may cause default. This means you should only place funds that you can reasonably afford to lose in the case you default on your loan.

Place a Large Down Payment

Placing a large down payment will allow you to show you are financially prosperous even if you have bad credit. This down payment will be made in the certificate, meaning you will also be placing a higher amount of collateral for the loan. Because you are earning dividends against this payment, you can subtract those dividends from the interest rate you are quoted. Even a high interest rate certificate-secured loan will be less expensive because these dividends partially offset the expense. When you do not have the funds for a large down payment, consider whether you can wait until more funds are available in order to seek the loan.

Prepare a Diligent Application

Your application becomes more important if you have bad credit. Treat the application like a job application; do not leave information off of the forms, and prepare it neatly and professionally. Unprofessional or incomplete applications may not even be considered if the applicant has bad credit. You may consider providing supplemental materials along with your application. For example, write a statement regarding why you had late payments in the past. Keep it professional and address only those issues that relate directly to your finances. Losing a job or having a high emergency medical bill are acceptable reasons to have a slight drop in credit score. 

Accept Worse Terms

High risk borrowers are a threat for modification. This means they often seek to pay off loans early or get a better interest rate in the future if their credit scores increase. Lenders are aware of this risk, and they may build in terms that are not favorable to the borrower as a result. A high risk borrower may have to simply accept these terms and know that they do not have the same negotiating power in a loan process as a more financially stable borrower.


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