Our guide to secured bad credit loans
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 poor 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.
What can be used as collateral?
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.
Why should I choose 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 poor credit history is the main reason you’re getting rejected.
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What are the risks?
The main risk with a bad credit secured loan is that you 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 chance your credit score could get even worse if you miss repayments, and because you have bad credit you can expect to pay higher interest rates than if your credit was good.
Can I get a secured loan with bad credit?
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.
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 refused 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.
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.
- 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.
- 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.