Can You Get a Loan with a Low Credit Score?

If you don’t have the best credit score but need extra cash, options may be available. Some lenders will look beyond your credit and consider other factors, like the ability to repay the loan.

As you shop around for loans, you’ll find two options: secured and unsecured. So what is a secured loan, and what is an unsecured loan? Since both types of loans are available to borrowers with less-than-perfect credit scores, let’s review how they work.

Secured Loans

Secured loans are backed by collateral, a valuable asset like a car, truck, or house. While secured loans typically offer large borrowing amounts and lower interest rates, they can be risky.

Here’s why: If you fail to make payments on a secured loan, the lender may take your asset. If you depend on your assets, it could be an issue. For example, if you use your car as collateral and fail to repay the loan, you’ll have no way to commute to work or get to the grocery store each week. So, this is something to consider before you apply.

Some of the most common types of secured loans include:

• Secured Personal Loans: While secured personal loans are less common than unsecured personal loans, they do exist. Most lenders offering secured personal loans provide fixed monthly payments and consider your entire financial picture when approving your application.
• Home Equity Line of Credit (HELOC): A HELOC lets you borrow money using the equity you have in your home as collateral. Your home equity is the difference between the amount you owe on your mortgage and the value of your home. With a HELOC, you can withdraw as much or as little as you need up to a set credit limit. You’ll only pay interest on the amount you borrow.
• Auto Loans: An auto loan is money you borrow to help you pay for a new or used vehicle. You can get one through a bank, credit union, online lender, or dealership. Once approved, you’ll repay the lender in monthly installments with interest.

Unsecured Loans

Unsecured loans don’t require collateral to borrow funds, so you won’t have to risk losing your assets. When you apply for an unsecured loan, a lender usually considers factors like your credit score, income, and employment status.

If your credit is not in the best shape, you may find it more challenging to qualify for an unsecured loan because approval typically depends on your creditworthiness. Some lenders are open to lending to borrowers with all types of credit.

You may also pay a higher interest rate with an unsecured loan if you have a lower credit score because the lender is taking on more risk that you may default on the loan.

The Bottom Line

Fortunately, there are loans available if you have a low credit score. You can choose from secured loans that require collateral and unsecured loans that do not, but approval will depend on the lender’s requirements.

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