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Secured Loan With Bad Credit

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

How to get a secured loan with bad credit?

Let’s say you need a large sum of money to finance a project or secure a large piece of machinery for your business. Naturally, you could just walk into your bank and apply for a loan. If you have bad credit, securing the funding you need may not be a walk in the park.

That’s where secured loans for bad credit come in. Unlike an unsecured personal loan, a secured loan is less risky for lenders, increasing the chances of getting approved for the funding you need.

What are secured loans for bad credit, and how do you get them? This guide explores the answer to this question and more on bad credit secured loans.

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What are secured loans for bad credit?

A secured loan for bad credit works the same way as any standard secured loan. It allows you to use an asset you own as security for the amount of money you intend to borrow. Secured loans provide borrowers who have a low credit score with a way of accessing credit financing, particularly if they’re having a hard time securing a loan.

Borrowers with a low credit rating are generally considered high-risk by most lenders. Secured loans minimize a lender’s risk exposure since they know they can dispose of the asset to recover the monies owed to them if a borrower defaults on the loan. If you have poor credit, it might be easier to qualify for a bad credit secured loan than unsecured loans or any other type of short-term loan.

However, the risk to you is that you could lose your asset if you fall behind on your loan repayment obligations. Even one missed monthly payment can result in the loss of your collateral.

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What kind of asset can be used as collateral?

Loan collateral is an arrangement whereby you agree to provide the lender with an asset you own to be used as security for the amount you intend to borrow. Using collateral to secure a loan reduces the lender’s risk exposure since they have the option to recover the asset in question to pay off the outstanding balance.

The type of collateral you can use as security for the loan you’re applying for depends on the lender, the specific type of loan you want, and the value of the asset in question. Some of the assets lenders accept as collateral for bad credit secured loans include the following:

Property

When an individual takes out a mortgage, their home becomes the collateral for the property loan or any other mortgage-related borrowing they may require, including:

Homeowner loan

In this scenario, you would take out a separate loan secured against the equity you hold in your property. A homeowner loan is sometimes referred to as a second charge mortgage since one property is used to secure two separate mortgages. The additional mortgage is usually held with a different lender.

In the event a borrower defaults on the secured homeowner loan, the first lender is given priority when recouping their losses after the sale of the property.

As is the case with secured loans in general, the amount of money you borrow on homeowner loans cannot exceed the value of equity you hold in the property.

Further advance

In this scenario, you would use your current mortgage to borrow more money from your existing lender. The annual interest rate on this additional advance would differ from your primary mortgage, and your property would remain the collateral. Homeowners typically take out this type of advance to fund a home improvement project, purchase a second property, or for debt consolidation.

Vehicles

While properties are usually used as collateral in secured loans for bad credit, the reality is – any type of valuable asset can be used as security. You can use your car or motorcycle to secure a loan.

It is worth noting that a secured personal loan that uses a vehicle as collateral is not the same as car finance or a logbook loan. The latter is where you secure additional financing on a car you already own and is a predatory form of borrowing due to the high costs involved. Its terms are similar to those of a payday loan.

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Other accepted forms of collateral for secure loans

Aside from property and vehicles, some lenders also accept the following items as collateral when applying for secured loans for bad credit:

Investments

If you have a shares portfolio, you might be able to borrow against it. If you’re thinking of going this route, it’s important to keep in mind that the values of shares are prone to fluctuate. If their value depreciates, you might end up paying more on interest rates compared to the potential yield on the investment.

It is worth mentioning that the availability and eligibility of these bad credit secured loans are usually restricted to individuals with a high net worth and with a sizeable investment portfolio.

Art, antiques, and jewellery

While most lenders don’t typically consider collectors’ items and luxury goods acceptable forms of collateral when assessing applications for secured loans with bad credit, some niche providers do. You just need to know where to find them.

Once the lender values and assesses the items, you’re required to hand them over (but retain ownership) until you have fully paid off the loan.

Why is a secured loan a great option for bad credit borrowers?

The decision to take out a secured loan for bad credit should not be taken lightly. However, if you’re having a hard time securing a standard personal loan or secured loan due to your poor credit history, a bad credit secured loan might be a worthwhile alternative to consider.

A secured loan poses less risk to the lender, making it more likely to get your loan application approved. The larger portion of the risk is borne by the borrower, as failure to make timely repayments may result in the loss of the asset they put up as collateral.

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How to get a secured loan for bad credit

Whether you have bad credit or an excellent credit score – the application process for a secured loan is the same. Here’s how to get bad credit secured loans:

  1. Identify a lender: Any time you apply for any form of credit financing, the lender conducts a hard credit search which can have an adverse effect on your credit history if your application is declined. This rejection leaves a footprint in your credit file that will be visible to other prospective lenders assessing your loan eligibility. The best option would be to go through a bad credit broker with insider knowledge of the lending market to help you secure a loan with a lender that will likely approve your application on the first try.
  2. Provide details about your asset: Once you’ve identified a lender, you will need to provide them with information about your property, vehicle, or any eligible asset you intend to use as collateral. They will then use this information to gauge your eligibility against their own criteria.
  3. Wait for the outcome of your application: Once you’ve submitted the required information, they will assess your loan eligibility based on your credit score, credit history, current circumstances, and the value of your asset to help them decide whether or not to approve your application.
  4. Review the loan offer: Based on the outcome of the lender’s assessment, they will calculate the loan amount you qualify for and present you with an offer. If you’re happy with the loan amount and terms, you’ll need to surrender the title to your property, the logbook to your car, or the asset itself if you’re using art, antiques, or jewellery as collateral.
  5. Receive the funds: Once you’ve surrendered the title or logbook to your property or vehicle and signed the loan agreement, the lender will disburse the funds to your bank account.

Before you apply for a secured loan, take the time to revamp your credit report. Ensure that it is up-to-date and that any open accounts you have since settled reflect as satisfied.

Additionally, only borrow an amount of money you can afford to repay and over a loan term you’re comfortable with.

Finally, make sure the interest rate you’re getting on the loan is the best deal available. An experienced loan broker will help you get a lower interest rate and the best loan terms possible.

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loan concept

Is approval for secured loans guaranteed?

At this point, it is important to state that having an asset you can put up as collateral doesn’t automatically mean that a lender will approve your loan application. It is still possible to get turned down, especially if you have bad credit.

Whether or not your application is approved depends on several factors, key among which are your individual circumstances at the time of your application and the lender’s own criteria when assessing your loan eligibility.

In the same breath, if your previous application for a secured loan was denied, it doesn’t mean you’ll get rejected again. Your individual circumstances may have since changed, subsequently improving your eligibility.

Either way, your best bet at increasing your odds for success is going through a bad credit broker. Our brokers have a proven track record of getting loan applications approved for borrowers with adverse credit histories. They conduct a soft search to assess your chances of getting approved before submitting your application to a niche provider they know will accept your application.

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What to do if your loan application is denied

If a lender denies your loan application, ensure you find out why. If it is something you can easily fix and reapply, that’s what you need to do. If you didn’t go through a broker during your previous application, now is as good a time as any to get in touch with one and have them look over your application and determine your eligibility.

Experienced brokers understand the ins and outs of the bad credit lending market and will match you to a niche lender that will likely approve your application.

How much can you borrow with secured loans for bad credit?

The loan amount you qualify for depends on several factors, key among which are:

  • The value of the asset you’re putting forward as collateral
  • The amount of equity you hold in your property if you’re using your home as security
  • Your recurrent income vs expenditure to assess your monthly repayment amount
  • Any outstanding debt you might have
  • Your credit score and history
  • The provider’s lending criteria

A lender will always consider how much you can afford in monthly repayments over the lifespan of the loan and any additional financial commitments you might have during the repayment term. Based on that information, the loan amount you qualify for can be anywhere from £1,000 to £1,000,000+.

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Get expert help from a bad credit loan broker

A poor credit score shouldn’t get in the way of accessing credit products. There are several niche lenders with higher-than-average lending appetites willing to give you a secured loan.

Our brokers are accredited secured loan brokers with a proven track record of getting more secured loan applications from bad credit borrowers approved than any other UK broker.

FAQ

Will my application for a secured loan be rejected if I have bad credit?

The reality is – there’s always the chance of getting rejected if your credit score is too low. Most high-street lenders won’t consider secured loan applicants with poor credit because of the perceived risk they pose to them.

An experienced broker can match you to a specialist lender that considers other criteria, such as the value of your collateral and loan affordability, when assessing your loan eligibility, despite your adverse credit past.

Can I use a secured loan to improve my credit score?

A secured loan, just like any other credit facility, such as a credit card, will reflect on your credit report. If you make timely repayments over the lifetime of the loan, your credit score will go up. The opposite is true for late or missed repayments, resulting in a low credit rating.

How much do secured loans for bad credit cost?

To evaluate the cost of a bad credit secured loan, you must consider the annual percentage rate of charge (APRC). The APRC is the equivalent of the APR on an unsecured loan. This figure takes into account the interest rate and the associated charges that have to be paid upfront. The APRC on secured cash loans in the UK can be anywhere from 9-10%, depending on the lender.

Contact us now for expert secured loan advice if you have a bad credit history.

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