Secured loan for bad credit
How to applying for finance when your credit history is less than perfect.
Related articles
What is a secured loan?
A secured loan is where you use an asset, usually your home, as collateral. This means if you fail to repay the loan, the lender has the right to take the asset to recover the debt. This makes secured loans less risky for lenders because they have the debt secured.
A poor credit history isn't the end of the line
Not only is it possible to find a secured loan with bad credit, you may find the following advantages open to you.
Simpler approval process
One of the main advantages of a secured loan for people with bad credit is the approval rates. When you apply for a secured loan, lenders are more willing to lend to you because they have the security of your asset. In other words, if you miss your monthly repayments, they have something they can sell to recover their money.
Larger loan amounts
Secured loans generally offer larger amounts of money compared to unsecured loans because they're backed by valuable assets. If you need a significant amount of money for home improvements or consolidating debt, you might have a better chance of being approved for a secured loan, rather than relying on an unsecured loan.
If you're looking into secured homeowner loans, your property could allow you to borrow much more than you could without it, depending on how much equity you have.
Lower interest rates
Since secured loans involve using an asset as collateral, you'll often get a lower interest rate compared to unsecured loans, where the risk is higher for lenders.
Let's say you've been offered a £10,000 unsecured personal loan with an interest rate of 20% due to your poor credit score. With a secured loan, you may be able to borrow the same £10,000 with an interest rate of 10%, saving you a significant amount of money over time.
Risks and considerations
While secured loans can be a good option for people with bad credit, they come with some risks to consider before going ahead.
Risk of losing your asset
The biggest risk with a secured loan is that if you fail to make your repayments, the lender could take your asset. For most people, this would mean losing their home or car. Before taking out a secured loan, make sure you're confident about repaying it and seek professional advice if you're not sure.
Longer terms and higher repayments
Secured loans often come with longer repayment terms, which means you might end up paying more overall. While this can lower your monthly payments, the cost of all the interest can be significant.
Impact on your credit score
Taking out a secured loan could improve your credit report if you manage to make all your repayments on time. On the flip side, if you miss payments or default on the loan, it can further damage your credit score, making it harder to borrow in the future.
Summing up
Secured loans can be a great option for people with bad credit who need access to larger loan amounts or better interest rates. But they come with risks, mainly the loss of your asset if you fail to keep up with repayments.
Before choosing a secured loan, make sure you fully understand the terms and have a repayment plan in place, and always compare rates and terms before making a decision.
Frequently Asked Questions: Secured Loans
How long does it take to get approved for a secured loan?
Approval times can vary, but secured loans typically take longer to process than unsecured loans because the lender needs to assess the value of the collateral you're offering as security. On average, approval may take a few days to a couple of weeks, with the money finding its way to your bank account shortly after.
Can I get a secured loan if I'm self-employed?
Yes, it's possible to get a secured loan even if you're self-employed or have irregular income, but it might be more difficult. Lenders will typically assess your ability to repay the loan, and self-employed people may need to provide additional information, such as tax returns or bank statements, to prove their income.
Are there alternatives to secured loans if I have bad credit?
While a good credit score always helps, you're still free to pursue all kinds of lending, from an unsecured loan to a credit card for bad credit. But these options may come with higher interest rates and lower borrowing limits. Secured loans remain one of the best options if you need to borrow a larger amount and have an asset to offer as collateral.
Articles that might interest you
Secured personal loan
A guide to understanding secured loans for personal use, helping you access the funds you need with better rates and terms.
Secured loan broker
Expert advice that helps you find the best secured loan options for your specific needs.
Secured loan interest rates and charges
A guide to the rates and fees that come with secured finance, to help you make the right borrowing decisions.
