Secured loans with bad credit
You should be able to get a secured loan even if you have a bad credit rating. Find out how they work and compare your other credit options.
If you’re looking to borrow money but worried that your credit rating may get in the way, a secured loan could be your best option. By using your house as collateral against the loan, you’re more likely to be approved, even if you have bad credit.
If you don’t own a home, you may want to consider a bad credit personal loan.
Late repayments can cause you serious money problems. See our debt help guides.
What is a secured loan?
A secured loan lets you use your home as collateral against the cost of the loan. Also known as a “homeowner loan” or “second charge mortgage”, a secured loan will also generally offer a more competitive rate than an unsecured loan.
In the event that you fail to repay your loan, the lender can take ownership of the equity you have in your home.
Can I use another asset as security?
Yes, you may be able to use another form of collateral with certain secured loans. However, many lenders will only consider customers looking to use the equity in their house as security.
Pros and cons
- More likely to be approved. If you have bad credit, you may find it hard to be approved for an unsecured loan. By using an asset as collateral, you reduce the level of risk and improve your chances of getting a loan.
- More competitive rate. A secured loan will likely have a much lower rate than an unsecured loan, especially for someone with bad credit.
- Better loan terms. Compared with an unsecured personal loan, you can generally get longer loan periods and higher maximum loan amounts.
- Higher risk. If you fail to repay your secured loan, you may lose the equity you have in your house, or even lose the house itself. You’ll also likely make your credit score even worse.
- Must have equity in your house. Secured loans require you to have an asset to use as security, and this is almost always your house. If you don’t have equity in your house, you generally won’t be able to apply for a secured loan.
- Loan size may be limited. The loan amount will be limited to the amount of equity you have in your house. If you only have a small amount of equity, it’s unlikely you’ll be able to get a large loan.
Am I eligible for a secured loan?
As with any loan, there are a number of eligibility criteria you will need to meet in order to be considered for a loan:
- At least 18 years old
- A UK resident
- Have equity in your property
What are my other options?
If you don’t qualify for a secured loan or don’t want to use the equity in your house, you still have a couple of other options:
Unsecured loans with bad credit. You may be able to get an unsecured loan with bad credit, but you will likely receive a much higher rate. The maximum amount you can borrow will also be much lower than on a secured loan.
Guarantor loan. By using a friend or family member as a guarantor on your loan, you’ll be able to reduce the risk you represent to the lender, which means you are more likely to be approved for a loan.
Credit builder credit cards. One way to improve your credit score is by using a credit-building credit card. If you can show a credit provider that you can responsibly manage your credit account, you’ll be able to improve your credit and make yourself more likely to be approved for a loan.
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