There are a many reasons why someone would need to access additional funds. Loans provide an option to secure money quickly and efficiently, however as with any lending, the amount you can borrow and the terms of the loan are influenced by your own individual personal financial situation, including credit history. From consolidating current debt through to investing in home improvements or purchasing a car, loans can provide an all important up front cash injection – yet finding the right loan to suit your specific needs can be a bit of a daunting process. A secured loan is one such option.
A question that our experts get asked regularly is can I get a secured loan with bad credit? The answer is yes, however there are a number of factors you should think about before applying.
How does a secured loan differ from a personal loan?
A secured loan is a loan which is secured against financial assets that you own, which ultimately can be used to pay back the debt to the lender if for any reason you are unable to. Because secured loans are usually quite large (often over £10,000), property is often used for the collateral, however other assets can sometimes be used e.g. cars. In a nutshell, secured loans offer the lender additional security because they will always be able to get the money back, for example repossessing a home.
By comparison a personal loan is unsecured – meaning that you are not putting any of your assets up as collateral. Typically, personal loans are for smaller amounts, but you can find personal loans up to £25,000.
For those who have bad credit, getting a secured loan tends to be easier than securing a personal loan because at the end of the day, they are less risky for the lender. However it is vitally important that with any borrowing, you are 100% sure that you will be able to make the repayments – particularly if your home is at risk of being repossessed.
What factors do lenders look at when deciding whether to approve a secured loan?
Credit history will always play a factor when lenders assess individuals who are looking to borrow money. Regardless of whether you are applying for a mortgage, a credit card, a personal loan or a secured loan, understanding the impact that certain financial issues have on your credit file can provide a clearer picture of what kind of lending options are open to you.
CCJs, mortgage arrears, missed payments and large amounts of outstanding debt will be considered by lenders for any application for credit. However, if you have had any of these financial issues in the past there could be more options for secured loans than you think.
There are a few factors that you should think about before putting the application through to help ensure that you have the best chances.
When applying for a secured loan with bad credit, lenders will want to make sure that you will be able to keep up with repayments. If your bad credit is as a result of multiple missed payments in the past, you could find this isn’t looked upon favourably by lenders. It is important to ensure that you are on top of your payments and can highlight a good track record of this. Therefore, if you’ve missed some payments recently, it is a good idea to wait a few months before applying for a secured loan (whilst ensuring that you make all the repayments during this time).
Lenders will also want to make sure that you’re not applying for multiple lines of credit. From a lender’s point of view, if your credit file shows multiple applications for credit cards, payment plans or other loans, it could appear that you are desperate for money – particularly if missed payments form part of the equation too. Try to avoid taking out additional credit in the lead up to applying for a secured loan to ensure you are in the best possible position financially.
What’s the process of applying for a secured loan with bad credit?
Once you have all your ducks in a row and are confident that you will be able to make the monthly repayments, you’ll be in a position to apply for a loan.
There are many secured loans on the market, but it can become daunting if you’re looking for the most suitable deals but don’t know where to start.
To make the process simpler, we always recommend using the professional expertise of a broker. Many brokers specialise in bad credit loans or mortgages, and have a vast knowledge on the range of secured loans which could be open to you before you start the application process.
They are also best placed for securing the right deal, giving you peace of mind that your repayments will be manageable and your interest rates will be suitable to your individual circumstances.