Can I Get a Secured Loan with Bad Credit?

Can I Get a Secured Loan with Bad Credit?

Secured loans for people with a bad credit profile can help you repair and improve your credit rating and help you to get your financial position back on a firm footing.  By finding the right loan provider you can access the funds you need, enhance your financial situation, and even improve your credit score, learn where to find secured loans, how the loan process works, interest rates and more.

What Is a Secured Loan?

A secured loan is a type of loan that involves the borrower offering the lender collateral. If the borrower subsequently defaults on the loan, the lender can ‘call in’ their interest in the collateral to recoup their losses. If you take out a secured loan and use your car as collateral, for example, the loan company will place a charge on the vehicle to signify their legal interest in the asset. If you don’t keep up with your loan repayments, the loan provider could then seize the car and take ownership of it.

Secured Loan vs Mortgage

When you apply for a mortgage, you’re essentially offering the property as collateral in exchange for a loan. As such, a mortgage is a common type of secured loan. In fact, it’s probably the largest secure loan you’ll ever apply for!

Similarly, homeowner loans or re-mortgaging are also classified as secured loans, as you’re using a property as collateral. When a mortgagee (borrower) fails to keep up with their mortgage repayments, the lender can seize the property via a process known as ‘repossession’.

When a property is repossessed the lender gains the legal authority to sell it, and you, as an occupant, will be required to vacate the home. Then, the property will be sold, and the lender will take what they’re owed to repay the mortgage. If there are any funds left over once the cost of the sale and the lender’s funds have been subtracted, the borrower is typically able to claim these back.

However, a property is only repossessed if a borrower doesn’t adhere to their repayment schedule. Provided you make regular repayments and abide by the terms of your mortgage, you won’t need to worry about damaging your credit rating or having your collateral seized.

How Much Can I Borrow with a Secured Loan?

The amount you can borrow will depend on a number of factors. Firstly, you’ll need to consider what type of secured loan you want to apply for. Whatever type of secured loan you decide to apply for, your income and expenditure will have a significant impact on how much you’re eligible to borrow. You can use a secured loan calculator to determine just how much you’re likely to be able to borrow. What may come as a surprise to you is that in most cases the affordability calculation is normally far more positive in respect of a secured loan than that relating to a first charge mortgage. Your credit profile and the equity in the property will of course have an impact on this calculation.

Can I Get a Secured Loan with Bad Credit?

Many people assume that bad credit will prevent them from getting a mortgage or a secured loan in general, but this isn’t the case. As you’re offering collateral with a secured loan, lenders are acquiring less risk than with an unsecured loan. Due to this, it can be relatively easy to be approved for a secured loan, even if you have a low credit score or bad credit history.

However, not all lenders will offer a secured loan to people with bad credit and those that do may charge high fees and interest rates. By working with a secured loan broker, you can access bespoke advice and find out what loans and deals are available to you. You should at this point also look at the long term view because your credibility will improve over the next few months, provided that you service the debt as required.  You may then be able to consider a remortgage, on more attractive terms, to consolidate all of your borrowing.

What Documents Do I Need for a Secured Loan?

The lender will specify what documentation is required before you apply for a secured loan but, in general, applicants are required to supply the following:

  • Proof of identity (e.g., passport)
  • Proof of income and outgoings (e.g., bank statement)
  • Proof of employment status (e.g., payslip/P60, accounts or SA302’s)
  • Proof of address and/or ownership (e.g., council tax or energy bill)

If possible, it’s advisable to collate these documents before you begin the application process as it will make it easier to determine how much you’re eligible to borrow. However, there’s no need to panic if you don’t have everything to hand. You may be able to use a driver’s licence to prove your identity instead of a passport, for example, so it’s worth making enquiries if you don’t have the exact documentation that’s specified.

How Long Does a Secured Loan Last?

A secured loan can technically run for any length of time, but you’ll agree to a specific term when you apply for the loan and sign a loan agreement. A relatively small loan might only run for a year or two, while larger loans could last for 5-15 years. When you’re taking out a first charge mortgage, however, you can borrow the funds for 25-35 years, depending on the agreement you make with the lender and your age will of course have an impact on the decision made by the lender.

How Much Interest Will I Pay on a Secured Loan?

The amount of interest you’ll be eligible to pay will depend on the interest rate set by the loan provider. If you choose a loan or mortgage with a fixed interest rate, you’ll be able to calculate how much interest you’ll pay from the outset. In contrast, variable interest rates can change over time and may rise or fall while you’re making repayments.

As loan providers are free to choose what interest rates they offer, it’s worth shopping around and comparing loan options before making an application.

Finding the Right Secured Loan for You

Finding the best secured loan or mortgage deal isn’t always easy, particularly if you’ve got bad credit or have experienced money worries in the past. At A Mortgage 4 You, our advisers are on hand to provide the help and assistance you need when it comes to finding the right secured loan. To learn more, contact our team now on 0800 802 1003.

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