Personal Loan : Bad credit is one of the biggest roadblocks when applying for a personal loan in India. A low credit score often signals high risk to lenders, leading to rejections or high-interest loan offers. However, if you’re struggling with poor credit but still need funds for emergencies, education, business, or medical reasons—a personal loan with collateral can be a smart and viable solution. This comprehensive guide explores secured personal loans for bad credit borrowers in India, highlighting available options, how to qualify, collateral types, interest rates, and actionable strategies to improve approval chances in 2025.
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Understanding Secured Personal Loans
A secured personal loan is a type of credit that requires the borrower to pledge an asset (also known as collateral) to the lender. This collateral reduces the lender’s risk, making them more open to approving loans even for applicants with a poor credit score.
Key Features of Secured Personal Loans:
- Require collateral such as property, gold, fixed deposits, or insurance policies
- Offer higher chances of approval for low-credit applicants
- Typically come with lower interest rates compared to unsecured loans
- Loan amount depends on the value of the collateral
- Lenders have the right to liquidate the asset if repayment fails
Read more: Top 10 Personal Loan Mistakes to Avoid in 2025 – Complete Guide for Financial Stability
Why Choose a Personal Loan with Collateral If You Have Bad Credit?
If your credit score is below 650, most banks and NBFCs will hesitate to lend to you. But secured loans work differently.
Benefits Include:
- Higher Approval Probability – Your asset offsets the risk of poor credit.
- Lower Interest Rates – Because the loan is backed by security, lenders offer more favorable terms.
- Flexible Repayment Tenure – Repayment periods can range from 1 to 15 years, depending on the asset.
- Loan Amount Based on Asset Value – You can borrow larger sums, which may not be possible with unsecured options.
- Improves Credit Score – Timely repayments help rebuild your credit profile.
Top Collateral Options for Secured Personal Loans in India
- Gold Loans
- Easily accessible through banks and NBFCs
- LTV (Loan-to-value) ratio of up to 75%
- Quick approval, even for credit-challenged borrowers
- Interest rates from 9% to 24%
- Loan Against Property (LAP)
- Residential or commercial property as collateral
- Ideal for large loan requirements (₹5 lakh – ₹5 crore)
- Tenure up to 15 years
- Interest rates from 8.75% to 15%
- Loan Against Fixed Deposits
- FD held with the lender can be used as collateral
- Lower interest rate (just 1-2% above FD interest)
- Quick approval and minimal documentation
- Loan Against Insurance Policies
- Only applicable for endowment and money-back policies (not term plans)
- Up to 80-90% of surrender value can be borrowed
- Lower processing fees and competitive interest rates
- Loan Against Mutual Funds or Shares
- Ideal for salaried and investors with existing portfolios
- Available through major banks and brokers
- Loan amount based on market value and type of fund
Best Lenders Offering Personal Loans with Collateral for Bad Credit
| Lender | Collateral Type | Interest Rate | Loan Amount Range | Tenure |
|---|---|---|---|---|
| Muthoot Finance | Gold | 9% – 26% | ₹10,000 – ₹1 crore | Up to 3 years |
| Manappuram Finance | Gold | 12% – 24% | ₹5,000 – ₹1.5 crore | 1 – 36 months |
| ICICI Bank | Property, FD, Shares | 9.50% – 15.50% | ₹50,000 – ₹5 crore | Up to 15 years |
| HDFC Bank | Property, FD | 9.50% – 14.50% | ₹1 lakh – ₹10 crore | Up to 15 years |
| SBI | Property, FD | 8.75% – 13.50% | ₹50,000 – ₹7.5 crore | Up to 15 years |
| Bajaj Finserv | Property, Shares | 10% – 17% | ₹1 lakh – ₹5 crore | Up to 15 years |
Eligibility Criteria for Secured Personal Loans with Bad Credit
Even though credit score takes a back seat, lenders still assess other eligibility factors:
- Age: Minimum 21 years, maximum 60–65 years
- Income: Minimum ₹15,000/month (may vary by lender)
- Employment: Salaried or self-employed individuals
- Asset Ownership: Must be able to prove ownership of collateral asset
- Documentation: Aadhaar, PAN, income proof, bank statements, asset ownership proof
How to Apply for a Personal Loan with Collateral in 2025
- Assess Your Asset – Choose the most valuable and accessible collateral.
- Compare Lenders – Look at loan terms, interest rates, processing fees, and tenure options.
- Evaluate Loan Amount – Lenders will offer up to 70–90% of your asset’s value.
- Prepare Documentation – Keep ID, address proof, income proof, and asset documents ready.
- Submit Application Online/Offline – Apply through the bank’s website, loan aggregator platform, or nearest branch.
- Get Valuation Done – Some assets like property or gold need to be valued before approval.
- Receive Approval and Disbursement – If approved, the loan is disbursed to your account, usually within 1–3 working days.
Interest Rates: What to Expect with Bad Credit
Even with collateral, your rate might be slightly higher if your credit score is under 600. However, the difference is much smaller than unsecured loans. For example:
| Loan Type | With Good Credit | With Bad Credit (Collateralized) |
|---|---|---|
| Gold Loan | 9% – 14% | 12% – 24% |
| Loan Against Property | 8.75% – 12% | 11% – 16% |
| Loan Against FD | 7% – 9% | 8% – 10% |
Tips to Maximize Approval Chances for Bad Credit Borrowers
- Offer a High-Value Collateral – The higher your asset value, the better your chances.
- Opt for Shorter Tenure – Lenders prefer short-term repayment plans for high-risk profiles.
- Apply with Co-applicant – A spouse or family member with good credit can increase approval odds.
- Avoid Over-Borrowing – Keep the loan amount realistic and within the LTV ratio limits.
- Maintain Income Stability – Show a consistent income stream through bank statements or IT returns.
Alternatives to Secured Personal Loans for Bad Credit
If you don’t have suitable collateral, consider these alternatives:
- Peer-to-Peer Lending Platforms (like Faircent, LenDenClub): Allow you to borrow from individual investors even with poor credit.
- Employer Salary Advance: Many companies partner with fintech firms to offer short-term loans to employees.
- Credit Unions or Cooperative Societies: May offer small loans with flexible terms.
- Buy Now Pay Later (BNPL) Apps: For smaller purchases without traditional credit checks.
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Risks of Secured Loans for Bad Credit Applicants
- Asset Seizure: If you default, the lender has the legal right to sell your asset.
- Over-Borrowing: Don’t be tempted to borrow the full value of the asset if you can’t afford the EMIs.
- Hidden Charges: Processing fees, late penalties, valuation fees—always read the fine print.
Is a Personal Loan with Collateral the Right Choice for You?
Opt for a secured personal loan if:
- You have urgent financial needs
- Your credit score is below 650
- You own a valuable asset
- You have stable monthly income
- You plan to rebuild your credit profile
Avoid if:
- You are not confident in repayment ability
- The loan amount exceeds your repayment capacity
- The asset pledged is emotionally or financially irreplaceable
Conclusion: Leverage Your Assets, Even with Bad Credit
In 2025, borrowers with bad credit are no longer entirely excluded from financial access. Personal loans with collateral are a powerful tool to secure funding, especially when your credit report works against you. With gold, property, or fixed deposits as security, you can access competitive interest rates, flexible terms, and high loan amounts—while simultaneously working on improving your creditworthiness.
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Whether you need funds for urgent needs or debt restructuring, using your assets to secure a loan can help you not just recover but also rebuild your financial credibility.
Disclaimer : Loan terms and interest rates may vary by lender and applicant profile. Please verify all details with the official provider before applying. This article is for informational purposes only. The author is not responsible for any financial decisions made based on this content.
