Qualifying for a Stock-Secured Loan with Bad Credit

A secured loan is a good option for those with bad credit because the collateral can offset some of the risk for the lender. When the lender is assuming less risk in the loan, the interest rate and terms will typically be better. One option for securing a loan against collateral is using a stock certificate. This option, called a stock-secured loan, allows you to continue earning dividends and value on the stock even when it is held with the lender. Those with bad credit can still gain the advantages of stock-secured loans.

Seek Reasonable Loans

Seeking a reasonable amount of financing is key to gaining approval when you have bad credit. In a stock loan, you must first understand you will not be able to collateralize the stock for its full market value. A lender likes to hold onto an asset that is more valuable than the loan itself to assure against default. This means you can expect to get a percentage of the stock's total value in your financing. You should also be wary of seeking a larger loan than you need; the larger the loan, the more you will pay in interest. Seek financing in the smallest amount possible.

Prepare Flawless Applications

Loan applications are like job applications: they will be judged with all criteria in mind and compared to other applicants. This means you will need a flawless application if you have bad credit. Start by ensuring all information is accurate and accounted for. Leaving any information out may be grounds for immediate denial of your stock-secured loan. Once you have completed all information, ensure the application looks as professional as possible. This means keeping the pages and handwriting or typing neat and error free. When you submit the application, even your personal appearance will come into play. On all points, be professional.

Provide Personal Statements

A personal statement can provide the lender with more information about why you need the loan or why you have bad credit. Remember: do not include too much information and do not make it too personal. The lender only cares about factors directly affecting the loan or your credit score. If you lost your job a few years ago and missed some car payments as a result, this may be information helpful to the lender. If you simply overspent, you do not need to explain this to a potential lender.

Use Dividends to Offset Interest Rates

Your interest rates will be higher once you are approved for a loan due to your bad credit. Stock-secured loans can help offset this interest rate through the dividends earned on the stock. Consider the total cost of the loan by subtracting earnings on the stock itself from the interest rate. If you were to sell the stock in order to gain the financing needed, you would not have to pay interest, but you also would not continue to get earnings on your stock. This way you can compare the cost of the loan against what it would cost you to simply sell the stock. 

 

 


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