Secured Loans for Bad Credit

Typically, that asset will be your home or car – but regardless of the security you use, getting a secured bad credit loan is always a big decision. If you keep up with your monthly repayments, then all should be fine, and your loan and interest should be paid off by the end of the loan term. Importantly, however, if you fall behind with your payments, the lender is allowed to take your asset, meaning you would lose your home or car.

In the right circumstances, secured loans for bad credit could be something you want to consider, and you can compare bad credit secured loans on this page. But there is much to consider first and, if you’re unsure in any way, take the time to find out more about secured loans for bad credit in depth below.

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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it. If you are thinking of consolidating existing borrowing you should be aware that you may be extending the terms of the debt and increasing the total amount you repay. This secured loans comparison and quote service is presented via our partnership with Norton Finance. Data provided is submitted directly to Norton Finance. Nerdwallet Ltd does not form part of the service beyond this introduction.

What is a secured loan for bad credit?

A secured loan for bad credit is a type of secured loan that could provide you with a way of borrowing if a bad credit history means you’re struggling to get a loan.

With a secured loan, you put forward an asset that you own as security for the loan. As lenders know they are entitled to take that asset to recover their money if you don’t pay back the loan, it might be easier to get a secured loan than an unsecured loan which offers a lender no such security. This is particularly the case if you have bad credit.

The risk to you, however, is that you could lose your asset to the lender if you are unable to keep up with your loan repayments.

Why would I use a bad credit secured loan?

Taking out a bad credit secured loan is never a decision to be taken lightly. However, if you’re struggling to get accepted for a personal loan or can’t get a standard secured loan, it might be an option worth considering if a bad credit history is the main reason you’re getting rejected.

What are the risks of secured loans for bad credit?

The main risk with a bad credit secured loan is that you could lose the asset that you put forward as collateral to the lender. This could happen if you fail to make your loan repayments when you should, potentially leaving you without a home if that’s the asset you’ve used as security for the loan. There is also the risk your credit score could get worse if you miss repayments. And because you’re looking to borrow with bad credit, you can expect to pay higher interest rates than if your credit was good.

How do I get a bad credit secured loan?

There are a number of lenders that offer secured loans for borrowers with less-than-perfect or bad credit scores, but you’ll need to be able to provide the security that they require and show that you can afford to repay the loan.

Being able to offer suitable collateral is key because this is what lowers the risk to the lender of offering you a loan. To prove the loan repayments are affordable, you’ll have to share details and proof of your income, regular outgoings and any existing debt.

What can be used as collateral for a secured loan for bad credit?

You’ll usually need to put forward something of considerable value as collateral for a bad credit secured loan.

If you own or part-own your home, you would probably use your property as the security that is required – sometimes secured loans are referred to as homeowner loans or second charge mortgages for this reason.

Alternatively, some lenders are willing to accept a vehicle, jewellery or certain other valuable assets as collateral.

» MORE: What can I use as collateral for a loan?

Am I eligible for a bad credit secured loan?

Different lenders tend to have different eligibility criteria that they want you to meet. This means it’s possible to have your application for a bad credit secured loan rejected by one lender but accepted by another.

You might find it more difficult to get a loan if you have a particularly bad credit history. However, it’s likely there will still be some lenders who are willing to consider your application and potentially offer you a loan.

Lenders also look at other criteria, such as your income, outgoings and employment situation, when making a decision as to whether to lend. The value of your security, whether you own it outright, and any other debt you might have can be important too.

Using a specialist broker is one way of improving your chances of finding a lender who might be able to help.

Do I have to be a homeowner?

While you don’t always need to be a homeowner to get a secured loan with bad credit, your home is the type of security for the loan that will usually be required for a secured loan. All of the secured lending options available through our partnership with Norton Finance are secured against property.

If you’re not a homeowner, or don’t want to use your property as security, some alternative assets you might be able to use include your car (though logbook loans can be very expensive), or another valuable asset such as jewellery.

If you can’t, or would prefer not to put forward anything as security, you might consider an unsecured loan.

What if I’ve been rejected for an unsecured loan?

Being rejected for an unsecured loan doesn’t automatically mean you’ll be turned down for a secured loan.

Typically, it’s easier to get a secured loan if you have bad credit than an unsecured loan because lenders know they have the option to claim the asset you put forward as security if you can’t pay back the loan.

What are the pros and cons of secured bad credit loans?

While there are certain advantages of bad credit secured loans that can help you out as a borrower, there are potential drawbacks that it’s vital you’re aware of too.

Advantages

It may be easier to get accepted for a loan with bad credit if you are willing to put forward an asset as security.
You might find you’re able to borrow more with a secured loan than through an unsecured loan.
Interest rates on secured bad credit loans could be lower than those you would pay when trying to get an unsecured loan with bad credit.
Longer repayment terms might be available than on unsecured loans, giving the option for lower monthly repayments.
Keeping up with your loan repayments could help to improve your credit score over time.

Disadvantages

You risk losing the asset you put up as collateral for the loan – so potentially your home or car – if you don’t keep up with repayments.
Interest rates are likely to be high because you have bad credit.
You’ll need a valuable asset that you’re willing and able to use as security if you want to apply for a secured loan.
Paying your loan back over a longer period of time to keep your monthly repayments low means you’ll end up paying more in interest overall.
Secured loans sometimes have high arrangement fees and other charges you’ll need to take into account.
Failing to keep up with your repayments could damage your credit rating further still.

How do secured loans for bad credit work?

Bad credit secured loans work in much the same way as how a secured loan works if you don’t have bad credit.

If you’re approved for a loan, you’re given a lump sum of money, which you’ll then need to repay, along with interest and any charges. You’ll pay off the loan by making regular repayments for a period of time that you’ll agree with the lender before taking the loan. Assuming you make all of your repayments when you should, the asset you put forward as security won’t be at risk and your debt should be entirely cleared by the time your repayment term ends.

However, if you fail to keep up with your repayments, the lender is within its rights to take possession of your asset to get the money back that it is owed.

Where can you get secured loans for bad credit?

It’s possible you could get a bad credit secured loan by approaching a lender directly or you might want to use a broker.

One advantage of using a broker, such as our partner Norton Finance, is that they have access to a wide range of specialist lenders who might be more willing to lend you as a borrower with bad credit. This makes it easier to compare secured bad credit loan options, while some lenders only accept applications via a broker.

Are secured bad credit loans easy to get?

While there is no guarantee that you’ll be accepted for a secured bad credit loan, the security you’re putting forward for the loan means you might find it easier than getting an unsecured loan with bad credit.

When deciding whether to offer you any secured loan, a lender will also consider other factors, such as your personal situation and whether you’re likely to be able to afford to repay the loan.

How much can I borrow on a secured bad credit loan?

How much you can borrow will depend on a number of factors, but because the lender has the security of knowing it can claim your asset if you don’t repay the loan, it’s usually possible to borrow more than through an unsecured loan if you have bad credit. The maximum you can borrow through our broker partners, Norton Finance, is £500,000, while the minimum is £3,000.

Ultimately, however, how much you’re allowed to borrow will be decided on an individual basis and usually depend on a combination of:

the value of the security you’re putting forward
the amount of equity you have in your property (if using your home as security)
your income and outgoings
the amount of debt you might already have
your credit score and history
the lender’s individual criteria

Lenders will always look at how much you can afford to repay each month over the lifetime of the loan and your other financial commitments when calculating the loan amount you might be allowed.

How long are the repayment terms on bad credit secured loans?

Secured loans tend to offer longer repayment periods than you might find on an unsecured loan. Typically, you might find you’re able to repay a secured loan for bad credit over a period of anywhere between three and 30 years.

Remember, however, that while a longer repayment term might make your monthly repayments more affordable, you’ll probably end up paying more in interest in total over the entire length of the loan.

How much does a secured loan with bad credit cost?

The interest rate you’ll pay on a bad credit secured loan will almost certainly be higher than if you were to have better credit. However, because you’re offering security for your loan, the rate might be lower than if you were to get an unsecured loan with bad credit.

With secured loans, you may need to pay an arrangement fee and other charges too. To compare the cost of bad credit secured loans between lenders, look at the annual percentage rate of charge (APRC), which should take into account both the interest rate and the loan charges you must pay. This is similar to the annual percentage rate (APR) you’ll see next to unsecured loans.

Always check with your lender how much your loan will cost overall.

How long does it take to get a secured loan?

Secured loans can often take anywhere between two and six weeks to arrange, so much longer than an unsecured loan. This is due to the detailed checks a lender must carry out on the asset you’re putting forward, particularly if it’s a property, and the legal work required to protect the interests of all parties.

Can I pay off my bad credit secured loan early?

You are allowed to pay off a secured loan early, but be aware that you might need to pay an early repayment charge if you do.

Always check the terms of your loan to see if this penalty applies and how much it would cost.

What credit score do I need for a bad credit secured loan?

This is likely to differ between providers, but lenders that offer bad credit secured loans accept that not everybody’s credit score is perfect.

Some might be willing to lend to borrowers with defaults, missed payments, county court judgments (CCJs) and debt management plans. Others might also consider applications from those who have experienced the most serious credit problems, such as individual voluntary arrangements (IVAs) and bankruptcy.

Remember also that the decision as to whether you’re offered a secured loan will not depend solely on your credit score. Other factors, such as the value of the asset you put forward as collateral and how affordable you’re likely to find a loan, are taken into account too.

How will my credit score affect my loan application?

Your credit score can affect your ability to get a loan and the interest rate you might be asked to pay. Generally, the better your credit score, the easier it’s likely to be to get a loan and the more competitive the interest rate you might be able to find.

That said, some lenders specialise in offering loans to those with bad credit. And it might be easier to find a loan if you can put forward an asset as security for a secured loan. However, trying to borrow if you have bad credit will almost always mean that the interest rates you’re offered are higher than if your credit was good, reflecting the greater risk it’s presumed you represent to a lender.

Do I have to pass a credit check to get a bad credit secured loan?

Lenders which are regulated by the Financial Conduct Authority are the only ones we recommend you use, and they must carry out a credit check before you’re formally offered a secured loan. However, your eligibility for a loan will depend on other factors too.

A soft credit check that doesn’t leave a mark on your credit report is typically conducted if you use an eligibility checker to find out if you’re likely to be accepted for a loan. A hard credit check, which is more detailed and has the potential to affect your credit standing, is then usually carried out when you make a formal application.

Can I be rejected for a secured loan if my credit score is too low?

There is a chance a lender will reject your secured loan application if your credit rating is deemed too low to meet its lending criteria. However, as this criteria can vary between lenders, you might still find success applying with someone else.

One advantage of applying for a secured loan if you have bad credit is that you’re offering the lender some security to fall back on if you don’t make your repayments. This might improve your chances of getting a loan with bad credit. Lenders also look at other criteria, such as affordability and the value of your collateral, when evaluating applications for a secured loan.

Can a secured loan help improve my bad credit score?

If you consistently make your loan repayments on time and never miss a payment, it is possible taking out a secured loan could help improve your credit score. Of course, the opposite might be true, and your score could get worse, if you pay late or miss payments altogether.

Can I get a better loan rate with a higher credit score?

A higher credit score usually means you’ll have more loan options and can open the path to lower loan interest rates.

With a better credit score, there’s a chance you won’t need a bad credit secured loan and might be able to get a standard secured loan, where interest rates should be lower, instead.

How else can I improve my credit score?

There are many ways you can try and improve your credit score including:

making sure you are on the electoral roll
correcting any mistakes you might find on your credit report
paying your bills and any loan repayments on time
reducing the amount of debt you have

» MORE: 15 ways to improve your credit score

How to compare secured loans for bad credit

To get a quote for a bad credit secured loan you’ll need to be prepared to share some essential details. These are likely to include, but may not be limited to, the amount you want to borrow, the time you want to pay it back, and why you want the loan. You’ll usually need to provide some personal details too.

Why should I compare secured bad credit loans?

Taking the time to compare bad credit secured loans gives you the best chance of finding the right loan for you at the lowest interest rate. The more lenders you can compare, the more likely it is you’ll track down the secured loan for bad credit that suits you.

Finding the right secured loan for me

Finding the best secured bad credit loan for you involves thinking carefully about the amount you want to borrow and your ability to pay the loan back. How long do you think you would need to pay the loan off and what level of monthly repayments could you afford?

Most importantly, you need to think about the risks of bad credit secured loans – getting one is not a decision to be taken lightly. The risk of losing your home, or whichever asset you put forward as security, is very real if you fail to make your loan repayments. Interest rates are usually high, so making sure you can comfortably afford the repayments each month is a must.

Do I have to use a broker?

There is no rule saying that you have to use a broker to get a secured loan for bad credit.

However, brokers are usually best placed to know which lenders offer bad credit secured loans and what their lending criteria might be. They can help make the process of applying more straightforward as well. Some lenders only accept applications through a broker too.

» MORE: Compare best secured loans

Alternatives to bad credit secured loans

There are a number of potential alternatives to secured bad credit loans that might prove less expensive, less risky or both, depending on your personal circumstances:

Unsecured personal loans for bad credit

As personal loans are unsecured, it means they can be taken out without putting forward an asset such as your home as security. This reduces the immediate risk of losing your property if you don’t make repayments but does typically mean that personal loans tend to come with higher interest rates and might be harder to get, particularly if you have bad credit.

Remortgaging

If you have enough equity in your property, you may be able to remortgage to release equity as cash. Depending on the mortgage rate you can get, your monthly repayments could rise and you might end up paying more mortgage interest overall. However, it might still save you money compared with a bad credit secured loan.

Guarantor loan

Instead of using an asset as security, a guarantor loan requires that you find a friend or relative who is willing to repay your loan if you don’t. If you have bad credit, having a guarantor could give a lender the reassurance it needs to offer you a loan.

Credit cards

If you’re looking to borrow in the shorter term, a credit card with an interest-free purchase period could prove less risky and cost you less in interest than a bad credit secured loan. Crucially, however, this relies on you paying the credit card off before the interest-free period ends.

Borrow from family or friends

You may not necessarily want to ask, but borrowing from those you know and trust can be an easy way to get the money that you need. Importantly, to avoid the potential for confusion and acrimony in the future, when lending money to friends and family, there should still be some formality to the loan, and make sure you agree and write down the terms on which the arrangement is based.

It’s possible to get a secured loan with bad credit, even if you’ve been rejected for a personal loan because of your credit score. If you’re comfortable putting forward your home or another valuable asset as collateral, some lenders might be willing to offer you a loan because they know they can take your asset if you don’t repay.

You might find it easier to get a secured loan with bad credit than an unsecured loan. This is because lenders like the security of knowing they can take the asset you put forward as collateral for a secured loan if you don’t pay it back.

About the Authors

Sarah Bridge

Sarah Bridge has been writing about business and finance since 2000. She was formerly Deputy Editor, Personal Finance, The Mail on Sunday and was previously the paper's Leisure Correspondent.

Tim Leonard

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

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