If you have bad credit, it can be difficult to get a loan from mainstream lenders. But a secured loan for bad credit can help improve your chances of being approved. This can be a good option for those of us with poor credit because it’s easier to qualify for than an unsecured loan.
If you want to know more about secured loans for bad credit, you’re in the right pace. We’ll tell you all about secured loans for bad credit, how you can apply, plus the pros and cons of taking one out.
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What are Secured Loans for Bad Credit?
A secured loan is when you take out a loan that’s secured against an asset that you own. This means that if you default on the loan, the lender has the right to sell your asset to recover the debt.
This is why secured loans are easier for people with bad credit to take out. It’s less risky for a lender if you stop paying. So, if you’ve got a poor credit rating but own an asset, a secured loan could be an option for you.
The most common type of asset used for a secured loan is your home. But there are other assets some lenders will consider. These are:
- Your car or van
- Your motorbike
- Your jewellery
How do Secured Loans for Bad Credit Work?
Applying for a secured loan is similar to applying for a personal loan. The key difference is that you’ll be securing the loan against asset, such as your home. Keep in mind that if you default on your repayments, your asset could be repossessed.
If you want to apply for a secured loan, you’ll need to follow this process.
1. Work out how much you need to borrow
You’ll need to make sure your asset is worth the money you’ll be applying for.
2. Find out if you’re eligible for the loan
There are comparison sites that can help you find out which loans you’re eligible for.
3. Before you apply, check the terms of the loan
Different lenders will have different interest rates and fees. Find out what they are so you know what you’re applying for.
4. Make sure you can afford the repayments
If you think your situation is likely to change, make sure you can still make your repayments. You’re at risk of losing your home or asset if you don’t keep up with the repayments.
5. Apply for the loan. A hard credit check will be done when you apply
Be aware that a credit check will be done when you apply for the loan. This will show on your credit file.
Can I Get a Secured Loan with Bad Credit?
Yes, it is possible. As you’re offering an asset to secure the loan, lenders are more likely to be willing to lend to you. And that’s even if you’ve got bad credit. You’ll have to prove your income and show that you can afford to repay the debt. But the chances of being approved are better than with an unsecured loan.
The main thing to be aware of is that it’s likely that the lower your credit score, the higher the interest rate you’ll be offered.
How Much Can I Borrow?
Secured loans can range anywhere from £1,000 to over £2 million. The amount you’ll be able to borrow will depend on the following.
- The value of your asset
- Your income
- Your financial situation
Having bad credit means you won’t be able to borrow as much as might like. That’s why it’s worth improving your credit score before you apply.
How to Find the Right Secured Loan for Bad Credit?
To find the right secured loan when you’ve got bad credit, you’ll need to find out the following points.
- Will you be able to borrow the amount of money you need?
- Will the loan give you the right length of time to pay it back?
- Will you be able to afford the monthly repayments?
- Does it have the lowest possible interest rates?
If you’re happy with the answers to these questions, you’ll find the right secured loan for your needs.
What are the Pros and Cons of a Secured Loan with Poor Credit?
There are advantages and disadvantages of taking out a secured loan when you’ve got bad credit. We’ve listed the main ones in the table below.
| Advantages of taking out a secured loan | Disadvantages of taking out a secured loan |
| You’re more likely to be approved for the loan as its secured against your asset. | You risk losing your asset (this could be your home) if you don’t keep up your repayments. |
| You may be able to borrow more than you could with an unsecured loan. | It can cost you more if the interest rate is high and you pay it back over a longer term. |
| It could help improve your credit score if you keep your repayments up to date. | It will affect your credit history if you default on the repayments. |
What are the Alternatives to Secured Loans for Bad Credit?
There are alternatives to taking out a secured loan, especially if you need to borrow less than £25,000. Here are some options you could consider.
- You could use a credit card for people with bad credit.
- You could take out a personal loan for bad credit.
- If you want the money for home improvements, you could Remortgage your home. But you’d have to find a lender that offers mortgages for bad credit.
- If you want to borrow smaller amounts of £1000 or less, consider using your overdraft on your bank account.
- You could take out a guarantor loan, but you’d need someone to guarantee it. This means the guarantor will be responsible for the repayments if you don’t make them.
Can I Get a Secured Loan with Poor Credit if I Don’t Own My Own Home?
Many people assume that they need to own their own home in order to qualify for a secured loan. But this is not always the case. There are some lenders who’ll offer loans against assets other than on property. These lenders will allow items such as cars, vans, bikes, or jewellery to be used as security.
Here are a couple of lenders who offer loans against other assets.
- Unbolted.com and Funding Secure offer loans that are secured against your jewellery.
- Evolution Money offers loans that are secured against your car.
Also, there are lenders who consider offering loans for people with bad credit even without asking for any security. Although the interest rate may be high, it can be worth checking with such lenders too.
What if I’m Rejected for an Unsecured Loan, Can I Still Get a Secured Loan?
If you’re rejected for an unsecured loan this doesn’t mean you can’t apply for a secured loan. The reason you could still be approved for a secured loan is because it’s less risky for the lender.
The downside is that the application you made for the unsecured loan will be seen on your credit file. And this would affect your credit score. But a bad credit score won’t stop you from getting a secured loan. It’s just that you’ll be offered higher interest rates.
Where Can I Find the Right Secured Loan for Poor Credit?
If you want to find a secured loan for poor credit, a great place to start looking is online. There are loan brokers as well as direct lenders who offer secured loans for people with bad credit. The main differences between brokers and direct lenders are as follows.
- You’re more likely to pay fees with a broker than with a direct lender.
- A broker searches through a number of different lenders to find which ones you’re eligible for.
There are comparison sites that you could try too. They’ll compare different secured loan lenders and give you information on their rates and terms.
What Credit Score is Needed for a Secured Loan with Bad Credit?
The credit score that’s needed for a secured loan depends on the lender. They’ll each have their own lending criteria that determines what score they’ll accept to approve the loan. If your score is very low, there’s a chance your application will be declined. That’s why it’s worth looking after your credit score.
Check your credit score so you know if it’s good or poor. And if you’ve got a bad credit score, take action to improve it. To find out what your score is, got to the three main credit reference agencies in the UK. These are:
- Experian
- Equifax
- TransUnion (formerly Callcredit)
What Determines the Interest Rate on a Secured Loan?
There are different factors that are taken into account when a lender decides what interest rate to offer you. The interest rate you pay is important. A high interest rate could mean your secured loan ends up costing you a lot to pay back.
The factors that could influence the rate you’re offered are listed below.
1. The Amount of Your Secured Loan
You don’t want to borrow more than what you need so be clear on the amount. If you’re borrowing to consolidate loans, make sure you know exactly how much you owe. If you’re borrowing to pay for home improvements, make sure you’ve got a quote on how much it’ll cost. There’s no point in getting into debt without good reason.
The lender will look more favourably at your application if you leave plenty of equity in your home.
2. The Term of Your Secured Loan
The longer you take to pay back your secured loan, the lower the repayments. But the longer you take to pay it back, the more it’ll cost you.
You want to show the lender you can afford the repayments. But it’s better for you to try and choose the shortest term you can.
3. Your Credit Rating
When you apply for a secured loan, a credit check will be done. That’s why it’s important that you do what you can to improve your credit score before you apply.
Although secured loans are easier to get when you’ve got bad credit, it’ll affect what you’re offered. Lenders will look at how you’ve managed credit in the past to help them decide the interest rate they offer you. For example, making repayments on time for a long period will help. You’re likely to get a better interest rate than if you’ve missed or been late making payments.
4. If You’re Securing the Loan Against Your Home, the Equity You Have in it
When the loan is secured against your home, the lender will look at how much equity you have. This is the difference between how much you owe against your property and how much it’s worth.
It’s possible that the more equity you have, the better the rate of interest. This is because it offers the lender more reassurance that they’ll get their money back if you default.
It’s important that you do your homework and know all your facts and figures before you apply. And compare lenders to find the right one for you.
How Can I Get the Best Deal on a Secured Loan?
If you’ve decided that a secured loan is the best option for you, do your research to find the best deal. Here are some things you can do:
- Ask your current mortgage provider. They may have some offers for you if you’ve been good at paying your mortgage.
- Look at comparison websites to find lenders who offer secured loans for bad credit.
- If your asset is something other than your home, look at the specialist lenders’ websites. Make your own comparisons of their terms and fees.
- Check that you’re eligible for the lenders you’re interested in. But make sure any checks they do are soft and not hard credit checks.
When taking out a secured loan, it’s important that you know you can afford the repayments. If you don’t, you’ll could end up losing your asset. And if that’s your home, you’ve got a lot at stake to lose.
FAQs – Secured Loans for Bad Credit
Can I Get a Bad Credit Secured Loan With No Fees?
Yes, you can apply for a secured loan with no fees, especially if you apply directly with the lender. Brokers tend to charge fees when you apply through them.
If you’re applying for a secured loan online, check whether the website you’re on is a broker or a direct lender. If you’re applying through a broker, find out what fees they charge for using them.
But as with all loans, you may be charged other fees, for example if you’re late making your payments. It’s wise to check the terms of the loan when you apply.
Is a Secured Loan Bad for My Credit Rating?
The answer to this question depends on how you manage your repayments. If you keep up your payments and make them in full and on time, this will help improve your credit rating. If you miss your repayments, it will damage your credit score.
Can I Pay off a Secured Loan Early?
Yes, you can pay off your secured loan early. You need to be aware that there could an early repayment fee. Some lenders may let you pay back a certain amount – say 10% – without any penalty. But you’ll need to check what the early repayment fees are with your chosen lender.
How Quickly Can I Get a Secured Loan?
The application is usually completed online. Once you’ve applied, the process can take around two weeks. You can often get the money in your bank account in 10 working days.
What are the Repayment Terms of a Secured Loan?
It depends on the lender. The time you have to repay the loan can go up to 30 years. They’re often flexible in that way but the longer the term, the more you end up paying back. The shorter the term, the more your monthly repayments will be. But a shorter term will cost you less.
Disclaimer: We are not providing financial advice. These are just tips for informational purposes. Also, we are not affiliated to any of the external parties linked here, they are provided for reference only.