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How to Get Secured Loans for Poor Credit History

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

If you’re having a hard time getting approved for a loan because of your adverse credit score, chances are you’re going about it all wrong. Don’t get us wrong – bad credit will make it harder for you to qualify for a loan. However, it does not preclude you from getting one, especially if you have something valuable you can use as a guarantee to the lender.

This guide explores everything you need to know about how to get secured loans for poor credit history, what you can use as collateral, and why you need help from an experienced loan broker. Read on.

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What are bad credit secured loans?

A bad credit secured loan is a form of lending designed for individuals with a poor credit rating. The borrower puts up an asset as collateral to secure the funding they need. This lowers the lender’s risk exposure since they can simply repossess the asset in question and dispose of it to recover the outstanding balance on the loan if the borrower stops making the required monthly payment instalments.

A secured loan is different from unsecured lending (also known as a personal loan). All the lender has to go on is your credit score when assessing whether or not to approve your loan application. Unfortunately, if you have a bad credit score, most lenders won’t even consider giving you an unsecured loan since they would be the ones absorbing the majority of the risk.

With bad credit secured loans, the borrower takes on the larger portion of the risk since there’s always the chance that they could lose their asset if they fail to keep up with the repayments. This makes it more likely for lenders to approve you for a loan even with bad credit, provided you have a valuable asset you can offer up as security for the debt.

Unlike an unsecured loan, secured loans come with far more favourable terms. They offer significantly larger loan amounts at a lower interest rate. They also have extended loan repayment durations which, in turn, allow for lower, more manageable monthly repayment amounts. The repayment term on a secured loan can run up to 30 years which is a far cry from the loan term for your run-of-the-mill unsecured loan or credit card product.

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How do secured bad credit loans work?

A bad credit secured loan works the same way any conventional secured lending product would for someone with a pristine credit record. If your loan application goes through, you will need to sign a loan agreement with the lender detailing the loan repayment terms.

Once you do, the funds will be disbursed to your account. You’re required to pay back the loan with interest through monthly repayments over a fixed term. As indicated in your loan agreement, the lender expects you to make timely payments on a specific date each month.

If you fail to make the required repayments, it is within the lender’s rights to repossess your asset, sell it, and use the sale proceeds to recover the outstanding balance owed. If there is any money left over after the sale, it will be reverted to you.

If you used your home as collateral to secure the loan, you could end up losing your property if you default. The decision to take out a secured loan with bad credit should not be taken lightly. Make sure you’re doing it for the right reasons, and only if you’re certain you’ll be able to comfortably keep up with the repayments.

Ensure the loan company you’re dealing with is licensed and regulated by the Financial Conduct Authority (FCA). It should also be listed in the Financial Services Register.

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Are credit checks necessary for secured loans?

Any time you apply for a loan from a direct lender, a credit check will always be part of their due diligence process. Loan companies use your credit score to evaluate your creditworthiness and assess the severity of your credit issues. It gives them a high-level view of how you’ve handled your debts and finances in the past.

When it comes to loan approval, every lender has its own set of criteria to assess prospective borrowers. They look at a wide range of factors beyond an individual’s credit score.

High street lenders tend to have stricter requirements than online lenders, particularly specialist companies that cater exclusively to bad credit applicants. The latter are more interested in the value of the collateral you’re using to secure the debt, whether you have a regular source of business/employment income, and if you can afford the monthly repayments on the loan amount you’re seeking. These factors are more important to bad credit lenders than your poor credit rating.

Loan companies also run credit checks to see if you have any issues that could potentially be problematic for them. For instance, they’ll want to see if there are any county court judgements (CCJ) against you or if you’ve recently declared bankruptcy.

Do I qualify for a bad credit loan?

Secured bad credit loans minimise the lender’s risk exposure since they can always dispose of the asset they’re holding as security in the event that the borrower defaults on the loan. Most specialist lenders will approve you for a secured loan – even with bad credit – provided you can prove that you can make the monthly repayments comfortably.

While a poor credit score will undoubtedly make you unattractive to lenders, specialist lenders analyse loan applications on a case-by-case basis. They will consider other factors, such as your current financial situation and the value of the asset you’re putting up as collateral when evaluating your loan application.

Lenders will also do an affordability assessment to assess whether you can make the monthly repayments for the lifetime of the loan. An affordability assessment involves analysing your income and outgoings, taking into account any other existing debts you might have, such as a secured homeowner loan, payday loan, unsecured personal loan, or any other short term loans you might have.

They will then calculate what percentage of your income would be required to service your existing loan, the proposed loan, and your month-to-month living expenses. If it meets the stipulated threshold, they will approve your loan application but cap it at a specific amount based on the outcome of the affordability assessment.

That being said, it is still possible to get your secured loan application denied, even if it appears that you can comfortably afford the monthly repayments. This may happen if they consider your credit score too low. If they approve you for the loan, you might have to pay a higher interest rate. Again, it all boils down to your personal circumstances.

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What are the risks of taking secured bad credit loans with a bad credit history?

The main risk of taking out bad credit secured loans if you have a poor credit history is the very real chance of losing your asset if you miss a payment. If you put up your home as collateral to secure the debt, you could end up losing it if you default on your monthly repayments, potentially rendering you homeless.

Additionally, missed payments could also hurt your credit score, making it worse than it already is. This could impact your chances of securing credit products in the future. If you do get them, you may have to pay a higher-than-average interest rate.

poor credit history

What loan amount do I qualify for on a bad credit loan?

Whether you’re applying for a debt consolidation loan, a homeowner loan, a bad credit mortgage, or a bad credit business loan, the loan amount you’re eligible for rides on several factors.

Some of these factors include the value of the asset you’re using as security for the loan, your income and outgoings, any existing debt you might have, and whether you can afford to make the monthly repayments. The amount you qualify for in business loans, debt consolidation loans, and homeowner loans will also depend on the loan company’s lending criteria.

It is worth noting that most lenders won’t give you a loan amount equivalent to the full value of the asset you’re putting up as collateral. They will give you a percentage of it.

For instance, if you’re using your home as security for the loan, and you hold £100,000 worth of equity in it, the maximum amount most lenders will offer is 50-80% of the asset value. In this case, the maximum amount you could borrow is £50,000-£80,000, contingent, of course, on other lending criteria.

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Get expert help from a bad credit loan broker

If you have a poor credit score, loan denials have probably become the norm when trying to secure funding from banks, credit unions, and other high street lenders. To them, you’re just another bad credit applicant and will automatically be eliminated by the automated screening tools.

It doesn’t matter that your financial situation has since changed. It doesn’t even matter that you hold an impressive amount of equity in your home.

That’s why you need to go through a bad credit broker who will match you with top specialist UK lenders willing to look past your application and approve you for a loan on the first try.

We use an accredited brokerage with a solid track record of getting more loan applications from bad credit applicants approved compared to any other broker in the country. Get in touch with us today, and we will get you a free quote within minutes.


Can I get turned down for a secured loan?

Yes, you can. If the lender deems your credit score too low or you provide false information during your application, such as lying about your income, your loan application might be rejected. You can also get turned down if a credit check reveals bankruptcy on your credit report or a county court judgment (CCJ) against you.

How hard is it to get approved for a secured loan if I have bad credit?

It is easier to get approved for a secured loan than for unsecured lending if you have bad credit. In the latter, all the lender has to go on is your credit rating when assessing your creditworthiness. If you have bad credit, your chances of getting a personal loan are slim to none.

On the other hand, with a secured loan, the lender’s risk exposure is minimised, making it more likely for them to approve your application compared to a personal loan or car finance.

What do I need to know before taking out a bad credit secured loan?

The most important thing you need to consider when applying for a bad credit secured loan is whether you will be able to comfortably keep up with the repayment instalments until you’ve repaid it in full. Missed payments could result in you losing your asset.

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