Qualifying for a Secured Loan

Factors for getting a secured loan

Many people who don't qualify for an unsecured loan can obtain a secured loan. Because of the fact these types of loans are secured in most cases by real estate there is less risk and thus the lender is more likely to approve loans even for those who do not have the best credit. Of course, you do have to show some type of stability with some issues in order to qualify.

Employment Stability

In order to qualify for a secured loan you must be able to provide proof of job stability. Even if you have recently changed jobs, if you can show that you have been working steadily with little time in between jobs, you may still be able to find a lender to approve your loan. The most favourable borrowers are those who have been on their jobs for several years, but secured loan lenders understand that circumstances sometimes force a borrower to change his employer. What they try to avoid are those borrowers who move from job to job without a valid reason.

Home Equity

Lenders prefer real estate as collateral for a secured loan. That means you must have enough equity in your home to cover the loan proceeds. The strength of your credit may cause a lender to loan more than their customary percentage on an equity loan, and for those with really strong credit, they may agree to loan some on an unsecured loan. Although the guidelines are well-defined with each individual lender, they do have some flexibility if you have strong credit.

Credit History

Even though a lender may offer credit to those who have bad credit, that doesn't mean they will not check the credit history. The amount a borrower can borrow even on a secured loan depends on their credit history. Someone who is unable to show any kind of pattern of repaying loans will not be approved for the same amount as someone who had loan defaults but has rebuilt their credit. The lender has to protect his investment, so he will loan less money at a higher interest rate to someone who has home equity but cannot show a pattern of paying his loans or credit cards.

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Debt to Income Ratio

Even though the lender is fully protected, he wants to make certain you have the ability to repay the loan. No lender wants to foreclose on any property, and the best way to prevent that is by making sure each borrower has the capacity to repay the loan. Therefore they have a set of guidelines that tells them what is an acceptable debt to income ratio, and if you fall outside of those guidelines you will not be approved regardless of how much equity is in your home. Those that are close may still be approved, but if the guidelines are 50% and your ratio is 58%, you are not likely to obtain a loan no matter how strong your credit may be. Exceptions may be made if you are consolidating debt, but the lender will have to review what your debt to income ratio will be if you consolidate.

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