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How to Get Small Secured Loans for Bad Credit

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Get Small Secured Loans for Bad Credit from our expert lenders in just 48 hours

You’ve made financial mistakes in your past, which continue to haunt you to this day. The net effect of those mistakes is that you now have bad credit, and no direct lender will touch you with a 10-foot pole.

The good news is – a poor credit score doesn’t mean that you can not get a secured loan.

You can access the funding you need and rebuild your credit while you’re at it. The answer lies in small secured loans for bad credit.

This guide explores everything you need to know about this form of secured lending and how to qualify. You can apply online below and we will put you in touch with an expert secured loan advisor who specialises in bad credit:

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What is a small secured loan for bad credit?

A small bad credit secured loan is similar to your run-of-the-mill secured loan. It is a form of lending where the borrower is required to put down an asset they own as collateral to secure the debt.

In effect, this gives the lender the right to dispose of the asset in question and use the proceeds from the sale to offset the unpaid loan balance.

This arrangement compels the borrower to keep up with the required monthly repayments or else risk losing their asset altogether. This is why the decision to take out a secured loan should not be made lightly.

If you have bad credit, there’s a good chance you’re already having difficulty securing any form of credit.

A low credit rating signals to prospective lenders that you pose a high risk to them. However, providing an asset, they can use as security minimises their risk exposure tremendously, making it more likely for them to approve you for a secured loan, despite your low credit score.

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How do bad credit secured loans work?

Not all lenders will automatically approve you for a secured loan simply because you have an asset they can use to secure the debt. High street lenders generally hardly (if ever) approve loan applications from prospective borrowers with a low credit score.

However, there are plenty of niche loan providers that cater almost exclusively to bad credit applicants. These lenders evaluate applications on a case-by-case basis and focus more on your capability to repay the loan rather than assessing you solely on your credit score.

For one thing, they’ll want to see whether you have a regular source of employment or business income or both. They first have to make sure you can actually be able to keep up with the repayment instalments.

They’ll also be interested in your income and outgoings. They want to see the amount of disposable income left over after paying off utility bills, groceries, gas, insurance, and any other recurrent monthly expenditure you might have.

They’ll also be interested in any existing debt you might have and whether you are keeping up with the repayments. Missed or late payments might indicate that you might be having a bit of a hard time keeping your head above water.

A debt consolidation loan can help you consolidate your various debt repayments for credit card bills, payday loan balances, secured personal loans, and any other short term loan you may have taken out.

Once the lender looks into your financial situation and, based on their affordability assessment, determines that you can comfortably keep up with the required repayments for the lifetime of the loan, they may approve your bad credit secured loan application. The loan amount they approve you for will depend on the value of your asset.

You can release some of the equity you hold by taking out a second charge bad credit mortgage on your property, otherwise referred to as a secured homeowner loan. If you own a car, you can take out a loan against your logbook.

Suppose you need a secured bad credit business loan. In that case, you can use your plant machinery, equipment, warehouse stock, commercial property, and accounts receivable and unpaid invoices as collateral for the loan.

Keep in mind that if you don’t stay on top of your monthly repayment instalments, you could lose your asset if the lender disposes of it to recoup the unpaid balance. Ensure that the lender you’re dealing with is listed in the FCA’s Financial Services Register to confirm it’s a legitimate company.

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Do I qualify for unsecured loans with bad credit?

The main difference between a secured and an unsecured personal loan is whether the borrower puts up an asset as collateral to secure the debt.

A lender would be more willing to approve a prospective bad credit borrower’s loan application if they provide an asset as a form of guarantee. That way, the lender can rest easy knowing they have something to fall back on if the borrower doesn’t keep up with their debt obligation.

On the other hand, when it comes to unsecured loans, all the lender has to go on is the applicant’s credit history when they do a credit check. A prospective borrower with a bad credit score poses a high risk to the lender, especially if their credit report indicates a default in their history.

The reality is that if you apply for an unsecured loan with bad credit, you’ll be rejected. Personal loans are better suited for individuals with a good credit rating.

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What bad credit issues can lead to a loan denial?

Every bad credit direct lender has its own set of lending criteria. What one loan company might consider a severe credit issue might not be viewed the same way by a different lender. That said, the one thing they all agree on is that bankruptcy in your credit file is as serious as it gets.

Most lenders will not consider loan applications from individuals who have filed for bankruptcy in the last 12 months. Others, especially the high street variety, won’t consider applications from prospective borrowers with a bankruptcy filing at any point in their credit history, regardless of how long ago it happened.

The same applies to county court judgments (CCJs) in your credit file. While they may not be as severe as bankruptcy issues, they rank pretty high as well and might result in a denial.

A few late or missed payments and minor defaults are likely to be overlooked by most lenders. Specialist bad credit loan companies assess applications on a case-by-case basis to assess what credit issues resulted in your poor credit score.

Having no credit history presents the same issues as having bad credit – lenders have no way of assessing the risk level you present to them if they approve you for secured or unsecured loans.

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Can small secured loans improve your credit score?

If you’re having difficulty securing a loan because of your low credit rating, applying for a small bad credit secured loan can be the gateway to improving your credit score. As long as you keep up with the required repayment instalments for the entire loan term, you should start seeing your credit score increase.

Get specialist help from a bad credit loan broker

While mainstream lenders may not jump at the chance to give you a loan if you have bad credit, there are plenty of niche bad credit loan companies that would. A poor credit score doesn’t have to define you.

It shouldn’t get in the way of securing the funding you need. A bad credit broker can help you secure a small loan for bad credit, and you can use it as a gateway to unlocking larger loan limits.

Fluent Money is an accredited money advice service with a verified track record of getting more loan applications approved than any other broker in the country.

They understand the nuances of the UK lending market. They have invaluable insider knowledge of specialist lenders with higher-risk appetites that will likely approve your loan application on the first try, even with a bad credit history.

Get in touch with us today, and will get you a free quote within minutes, start online below:

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FAQ

What can I use as collateral for a bad credit secured loan?

Lenders usually require prospective borrowers to put up a valuable asset as collateral.

The most common asset most people use is their home or the equity they hold. Companies applying for business loans may put up commercial property, plant machinery, equipment, and warehouse stock as collateral. Accounts receivable and unpaid invoices can also be used as business loan security for bad credit secured loans.

Can I get a secured cash loan if I’ve been rejected for an unsecured loan?

If your application for a secured personal loan has been denied, it is likely because of your poor credit history or lack thereof.

Your best bet is to apply for an asset-backed loan instead if you have an asset you own that you can put up as collateral to secure the debt. It would be in your best interest to apply through an experienced bad credit loan broker to enhance your chances of approval.

How much do I qualify for on bad credit secured loans?

The loan amount you can borrow depends on several factors, key among which are the value of the asset you’re putting up as security, whether you can afford the monthly repayment instalments based on your income and outgoings, and whether you have a regular source of business or employment income.

If you check all the boxes, most lenders will approve you for a loan amounting to 50-80% of the value of your asset.

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