If you need to raise capital, there are many options and secured loans continue to be a popular choice. Securing a loan against your property has many advantages but it does carry risks that you must consider before applying.
But, what happens when you have bad credit? Well, getting a secured loan with bad credit is possible. Nonetheless, you’ll need professional advice and perhaps a specialist lender depending on the nature of your credit file.
We’ll cover everything you need to know on how to get a secured loan, regardless of your credit history. Our advisors are ready to answer any questions that you may have. You can also start your application by making an enquiry.
Can I get a secured loan with bad credit?
Although getting a secured loan with bad credit isn’t easy, it’s certainly a possibility. Furthermore, there are lenders that specialise in providing secured loans to applicants who have adverse credit.
Secured loans are possible with the following credit issues:
- Late payments
Lenders will also assess your current financial affairs to check if you’re eligible. For instance, if you have an existing mortgage and are behind on payments, then lenders can be reluctant to lend. A secured loan will only add another monthly outgoing to your list of expenses. That’s why lenders need to check whether or not a secured loan will be affordable.
On the other hand, if you’re up to date on all of your payments you’ll perhaps have more lenders you can approach. Lenders also treat each credit issue in a different manner. Applying for a secured loan with a CCJ is completely different from applying with an IVA.
Download your credit report
It’s a good idea to first check your credit file. Websites such as Experian are a good place to start. You can also use websites such as Check my File which will give you all of your credit reports in one place.
Your credit report will highlight exactly what lenders will see when you apply. This will give you a better understanding of where you stand before you’ve even applied. Our advisors can also help you with this if you’re unsure of what to do.
How does a bad credit secured loan compare to a regular loan?
Secured loans from mainstream lenders are different to those from specialist lenders.
Lenders that offer secured loans with bad credit usually:
- Have higher rates
- Charge higher fees
- Have a limited range of loans
- Are less flexible in their assessments
If you have adverse credit it doesn’t mean to say you’ll only qualify with a specialist lender. You may qualify for a secured loan with a mainstream lender. Nonetheless, it’s important to understand the differences before applying.
What you don’t want to do is to apply with a mainstream lender until you’ve been advised to by an experienced broker. Although you may qualify for a mainstream loan, it’s always best to check if you qualify beforehand. If you are declined for any given reason it will typically leave a mark on your credit file, which is the last thing you’d want.
Do secured loan lenders charge high rates because of poor credit?
Although it’s common for specialist lenders to charge more, they do so because of the risk involved. That being said, some specialist lenders do offer competitive rates, even with severe credit issues.
Choosing a shorter loan term can also make the overall cost of the loan cheaper. This is because you’d be saving money on interest repayments. The only disadvantage to this is that your monthly payments will be higher as a result.
Secured loans can also be referred to as second charges. This is because your existing mortgage provider already has a charge on your property. As a result, lenders may charge slightly higher rates than a mortgage, simply because of the additional risk they’re taking.
Secured loans don’t always have to be secured on your own home. If you have a buy to let property, you may be able to secure the loan against that instead of the home you live in. In doing so, it significantly minimises your risk.
Learn more: What is a buy to let secured loan?
How do lenders assess secured loans with bad credit?
Having bad credit shouldn’t affect the loan amount you can borrow, but it can in some cases. This is because a credit check is only part of an assessment.
The main incentive for lenders is that they’re able to secure the loan against your property. This means that if you default on payments, lenders can use your home as collateral to repay the loan. The largest factor in the loan amount you’re offered will depend on the details surrounding your property and not just your credit history.
Affordability for bad credit secured loans is assessed on:
- Your property value
- The amount of equity you have
- Details of any other charges on your home (amount and number of charges)
- Your income and outgoings
- Whether the loan is to be secured on residential or buy to let property
- The severity of your credit issues and when they took place
Lenders need to be sure that your property has enough equity so they’re able to secure their loan against it. This is because if you already have a mortgage, your existing lender has a legal right to any capital before any other lender. As a result, secured loan lenders need to be sure that providing you with a loan is viable.
What risks are involved?
As with any type of loan, there are risks involved. Secured loans can be very high risk as you’re essentially using your home as security. As a result, 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. This is because any further credit issues could lead you to potentially losing your home.
Lenders will carry out their assessments and your advisor will also check that your affordability meets the criteria of the loan. Nonetheless, you also need to be confident that any loan repayments can be met.
During your assessment, lenders will carry out stress tests. It’s a good idea to also consider whether you’d be able to repay the loan if you underwent some sort of ‘financial stress’.
Examples of stress tests include whether you’d be able to repay the loan if there were hikes in interest rates or if you were unable to work. You should also make sure you consider ‘worst-case scenarios’ and base your decision on a calculated-risk.
If your finances did take a turn for the worst, your credit file would also take a huge hit in the process. This is especially true if your home is repossessed. There are other alternatives to secured loans such as a remortgage. There are lenders that may consider a remortgage with bad credit but the rates offered may be higher than your current mortgage.
Will I need a specialist broker because of my credit history?
Using a broker is always recommended, even for applicants with good credit. If you have adverse credit then speaking to an advisor is a must. This is because some lenders only offer their services through brokers. As a result, you’ll have access to a lot more lenders, which increases your chances of approval.
Brokers that are experienced in providing secured loans should be able to select suitable lenders. For instance, some lenders are better suited if you’ve been discharged from bankruptcy, whereas others are suited for a history of defaults. Trying to find the best secured loans on your own is near enough impossible.
Our advisors specialise in secured loans for applicants with bad credit history. We also have access to hundreds of lenders and can calculate everything for you. Choosing the best secured loan goes further than just finding the lowest rate. There’s so much more to think about such as fees, the length of the loan and of course, the small print.
You can make an enquiry and an advisor will call you straight back. We’ll then discuss your options and whether a secured loan is possible.