Secured Loans for Bad Credit

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.

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

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.

» COMPARE: Loans for bad credit

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.

Pros

• 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.

Cons

• 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.

How to get a secured loan with 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.

» COMPARE: Secured loans for bad credit

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 poor 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 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.

» COMPARE: Secured loans for bad credit

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 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.

How to compare secured loans for bad credit

Getting a tailored quote for bad credit secured loans is quick and easy thanks to our partnership with Norton Finance.

Simply tell us the amount you want to borrow, the time you want to pay it back, and why you want the loan. Then once you’ve added a few personal details, you’ll be ready to see whether you’ve passed the eligibility criteria and to compare loan offers where your application is more likely to succeed.

At this stage, getting a quote won’t affect your credit score either.

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.

» COMPARE: Secured loans for bad credit

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.

» COMPARE: Loans for 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.

» COMPARE: Remortgage deals

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.

» COMPARE: Guarantor loans

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.

» COMPARE: Credit cards for bad credit

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.