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Secured loans with bad credit

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Secured loans with bad credit

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Last reviewed on 15th November 2023 by Martin Alexander (Mortgage Advisor)

Getting a loan is challenging when you have bad credit. However, secured loans can be easier, as you’re giving lenders security for the loan. While this minimises a lender’s risk, it increases yours.

This guide will cover everything you need to know about getting a secured loan with bad credit.

Can I get a secured loan with bad credit?

You can get a secured loan with bad credit, and it’s often easier than other loan types. This is because you’d be using your home as security, which protects lenders if the loan isn’t repaid.

With credit issues, you’ll likely pay higher rates and fees to get a secured loan. Furthermore, you’re taking a huge risk by using your home as security for a loan.

Which credit issues can I get a secured loan with?

Secured loans are possible with the following credit issues:

  • Late payments
  • Defaults
  • CCJs
  • IVAs
  • Debt management plans
  • Bankruptcy
  • Repossession

Credit issues recorded in the past 12 months will make it more difficult to get a secure loan.

How do lenders assess secured loans with bad credit?

If you have bad credit, lenders will assess your loan application using the following factors:

  • Your property value
  • The amount of equity you have
  • Details of any other secured loans on your home
  • Your income and outgoings
  • Whether the loan is to be secured on a residential or buy to let property
  • The severity of your credit issues and when they took place

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

The most significant factor in the amount you can borrow will depend on the equity in your property and not just your credit history.

You can’t borrow more than the equity you have in your home. Lenders need to be sure that your property has enough equity to secure a loan against it.

If you already have a mortgage, your existing lender has a legal right to any capital before other lenders. For this reason, lenders that offer secured loans need to check that a loan is viable by assessing the amount of equity you have.

Your income will also be a factor in how much you can borrow. However, it’s still limited to the equity you have in your home.

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What are the pros and cons of a secured loan with poor credit?

You’ll need to consider several factors before taking a secured loan.

  • As you’re providing security to a lender, your chances of getting a secured loan are high
  • You may be able to borrow more with a secured loan
  • Repaying your loan on time can improve your credit score
  • A secured loan may be your only option due to having poor credit

  • You risk losing your home if you can’t keep up with repayments
  • Higher interest rates and fees when compared to remortgaging
  • There’s a limited range of loans compared to unsecured loans
  • Lenders are typically less flexible in their assessments

Alternatives to secured loans if you have bad credit

Before you apply for a secured loan, there are alternatives to consider.

Remortgaging

It may be easier to remortgage with bad credit rather than get a secured loan. The only downside is that the rates offered may be higher than your current mortgage.

Read more: How to remortgage with bad credit.

Credit cards

Borrowing on a credit card can be cheaper if you repay your monthly balance. Doing so can also help your credit score.

On the other hand, failing to repay your credit card can result in very high fees and cause your credit score to fall further.

Savings

You keep the savings you have as a safety net. However, using savings can be much cheaper overall, as you won’t have a loan to repay.

The downside to using savings is that you won’t have any emergency funds. Savings can be ideal for unexpected costs and help with monthly cash flow.

FAQs for bad credit secured loans

The rates for a secured loan are typically higher if you have poor credit. It’s common for lenders to charge more because of the risk involved. That said, some lenders do offer competitive rates, even with severe credit issues.

Choosing a shorter loan term can make the overall cost of your loan cheaper. This is because you’d be paying less interest overall. The only disadvantage to this is that your monthly payments will be higher as a result.

You can get a secured loan on a buy to let instead of the home you live in. Doing so significantly minimises your risk. However, you must have equity in your buy to let for this to work.

Learn more: What is a buy to let secured loan?

As with any loan, there are risks involved. Secured loans can be very risky as you use your home as security. If you default on the loan, you could lose your home.

If you’ve had previous financial difficulties, you’ll need to be sure that a secured loan is the right choice. Any further credit issues could lead to potentially losing your home.

Most lenders will require you to put your home up as security for a secured loan, especially if you have credit issues. Credit issues make you a high risk applicant and lenders need to have substantial security for the loan.

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About the author

Martin Alexander
Senior Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.