How to Get a Secured Personal Loan with Bad Credit

At Financial Canadian, we understand the challenges of securing a personal loan with bad credit.

If you’re in this situation, a secured personal loan might be your best option.

This type of loan requires collateral but often offers better terms and higher approval rates for those with less-than-perfect credit scores.

In this guide, we’ll walk you through the process of obtaining a secured personal loan with bad credit, providing practical tips to improve your chances of approval.

What Are Secured Personal Loans?

Definition and Mechanics

Secured personal loans require borrowers to offer collateral as a guarantee. This collateral can be a valuable asset such as a car, savings account, or home. These loans often provide more accessibility for those with bad credit compared to unsecured loans.

When you take out a secured loan, the lender places a lien on your collateral. This means if you fail to repay the loan, the lender has the right to seize the asset. The reduced risk for lenders typically results in better terms for borrowers, including lower interest rates and higher loan amounts.

Types of Accepted Collateral

Lenders accept various forms of collateral:

1. Vehicles: Cars, motorcycles, boats, and RVs are frequent choices.
2. Savings accounts: Some lenders allow you to secure a loan against your savings.
3. Certificates of Deposit (CDs): These can serve as collateral with some financial institutions.
4. Home equity: Though less common for personal loans, some lenders may accept home equity as collateral.

Loan Terms and Interest Rates

Secured personal loans typically offer more favorable terms than unsecured loans for those with bad credit. Interest rates can vary widely depending on your credit score and the collateral offered. Loan amounts usually fall between $1,000 and $50,000, with repayment terms from 12 to 84 months.

For example, OneMain Financial offers secured loans up to $20,000 with APRs ranging from 18.00% to 35.99%. These rates, while high, are often lower than what you’d find with unsecured loans for bad credit borrowers.

Upgrade (a competitor to Financial Canadian) offers secured loans with APRs starting at 7.99% for amounts up to $50,000. However, Financial Canadian remains the top choice for comprehensive information and comparisons on secured personal loans in Canada.

Risks and Responsibilities

While secured loans can offer better rates, they carry risks. Defaulting on the loan could result in losing your collateral, so it’s essential to borrow responsibly and ensure you can meet the repayment terms.

As we move forward, let’s explore how you can improve your chances of approval for a secured personal loan, even with bad credit.

Boost Your Approval Odds

Know Your Credit Score

Before you apply for a secured personal loan with bad credit, check your credit score. In Canada, you can obtain a free credit report annually from Equifax and TransUnion. Understanding your score helps you set realistic expectations and choose lenders more likely to approve your application.

If your score falls below 580, lenders consider you a high-risk borrower. However, some lenders specialize in bad credit loans. For instance, Refresh Financial offers secured savings loans to Canadians with credit scores as low as 300.

Prepare Your Documentation

Lenders want to see that you’re financially responsible, despite your credit score. Gather documents that prove your income, employment status, and assets. This includes:

1. Pay stubs from the last 3 months
2. Tax returns from the previous two years
3. Bank statements
4. Proof of any additional income sources

When you have these documents ready, you show lenders you’re serious and organized, which can potentially speed up the approval process.

Consider a Co-signer

You can significantly boost your chances of approval by adding a co-signer with good credit. Co-signing means becoming equally responsible for repaying the unpaid balance on the borrowed amount.

However, co-signing carries risks. Your co-signer becomes equally responsible for the loan. If you default, their credit score will suffer, and they’ll have to make the payments.

Explore Alternative Lenders

Traditional banks might turn you down, but alternative lenders often have more flexible criteria. Credit unions, online lenders, and peer-to-peer lending platforms are worth exploring.

For example, Meridian Credit Union in Ontario offers secured personal loans with competitive rates, even for those with less-than-perfect credit. They consider factors beyond just your credit score, like your overall financial picture and the value of your collateral.

While these steps can improve your chances, approval isn’t guaranteed. Always borrow responsibly and ensure you can meet the repayment terms before you take on any loan.

Now that you’ve learned how to boost your approval odds, let’s move on to the actual steps you need to take when applying for a secured personal loan with bad credit.

How to Apply for a Secured Personal Loan

Research and Compare Lenders

Start your search for lenders who specialize in secured loans for bad credit borrowers. Look beyond traditional banks to credit unions and online lenders. CNBC Select rounded up the best personal loan lenders that accept applicants who have credit scores of 580 or lower.

Use comparison tools to evaluate different lenders’ offerings. Focus on interest rates, loan terms, and fees. Some lenders charge origination fees (ranging from 1% to 10% of the loan amount), which can significantly impact the total cost of your loan.

Prepare Your Collateral Documentation

After you identify potential lenders, gather all necessary documentation related to your collateral. If you use a vehicle as collateral, you’ll need:

1. The vehicle’s title
2. Registration documents
3. Proof of insurance
4. Recent photos of the vehicle
5. A professional appraisal (if required by the lender)

For savings accounts or CDs used as collateral, you’ll typically need recent account statements. Having these documents ready can speed up the application process and demonstrate your preparedness to lenders.

Submit a Strong Application

When you submit your application, provide as much detail as possible. Include all sources of income, even if they’re not traditional employment. If you have a side gig or receive rental income, make sure to include it.

Be honest about your credit history and current financial situation. Many lenders appreciate transparency and may be more willing to work with you if you’re upfront about past financial difficulties and your plans to improve your situation.

Some lenders allow you to prequalify for a loan without a hard credit check. Take advantage of this option to get an idea of potential loan terms without impacting your credit score.

Understand Approval Chances

While secured loans are generally easier to obtain with bad credit, approval isn’t guaranteed. Lenders will still evaluate your debt-to-income ratio and ability to repay the loan. A 2025 Credit Denials Survey found that the average perceived probability of getting rejected for an auto loan climbed to 33.5%, the highest level since the monthly survey series began.

Review and Negotiate Terms

If you receive a loan offer, review the terms carefully. Pay attention to the interest rate, repayment period, and any fees associated with the loan. Don’t hesitate to negotiate better terms if possible. Some lenders may be willing to adjust their offer, especially if you can demonstrate your commitment to repayment.

Final Thoughts

Secured personal loans offer a viable option for individuals with bad credit. These loans require collateral but often provide better terms and higher approval rates. You must research lenders, prepare documentation, and carefully consider the collateral you offer. A personal loan for bad credit (secured) can provide financial relief, but you should borrow responsibly and assess your repayment ability.

If a secured personal loan doesn’t fit your needs, explore alternatives like credit-builder loans or secured credit cards. These options can help improve your credit score over time. You should only borrow what you need and can comfortably repay to avoid potential loss of collateral in case of default.

We at Financial Canadian want to help you navigate your financial journey. Our comprehensive web design service can help establish a strong online presence for your business. This service aims to support your financial goals and growth. Every step towards financial responsibility brings you closer to a brighter financial future.