Can You Get Secured Loans with Bad Credit?

It is always a little more difficult to get a loan if you have bad credit. Secured loans and mortgages for people with an adverse credit history have, however, got easier to obtain in the UK in recent years. Some lenders are now very willing to consider loans to borrowers with bad credit.

What is a Secured Loan?

A secured loan is one where the lender is given some kind of security. This is most typically a charge over your home. This gives the lender the option of taking over your home if you do not make the repayments due.

Regal Finance

Is a Secured Loan Right for You?

The main reason not to grant security is that the warnings about losing your home if you do not keep up with payments on a secured debt should not be taken lightly. You really could lose your home.

Even with an unsecured loan, there are circumstances in which you home may be at risk but you are less likely to lose your home than if you have granted security.

Other points to consider are:

There can be major set up costs associated with having a secured loan e.g. getting a valuation on your home
Secured loans are often for a longer period. The total interest you pay on the loan my be very high because of the longer period even if the annual interest rate is lower than on an unsecured loan

There are, however, some plus points about granting security:

You should be able to get a lower rate of interest because the risk to the lender on a secured loan is less than the risk on an unsecured loan
You may be able to borrow more
You can probably borrow money for longer – perhaps up to 25 years

Can I Get A Secured Loan with Bad Credit?

Probably yes – do not rule out secured loans just because you have bad credit. Secured loans and mortgages are less risky for lenders than unsecured loans. Lenders who are particularly willing to consider applicants with a poor credit record include:

Can You Repay The Loan?

Only take out a secured loan if you are very comfortable paying it back. Long term secured loans may seem a good idea at the time but your circumstances may change. Consider the effect of a new baby, redundancy and other changes in your life on your ability to pay. You may want to consider insurance to cover some risks. You need, however, to shop around for insurance – do not assume that you can only obtain it from your lender.

Also consider the effect of any increases in interest rates.

A lender will want to make sure that you can repay your loan – especially if your credit history is not perfect.

Fixed or Variable Interest Rates?

No-one can see into the future with total accuracy. Fixed interest rate loans give you the certainty of knowing how much you will pay whether interest rates go up or down.

The disadvantages of fixed rates include the possibility that you may end up paying more than you would have done if you had taken out a variable rate loan. As an example, this could happen if interest rates fall after you have taken out your mortgage.

It is a good idea to ask your lender to work out some examples of how you could lose out with a fixed rate secured loan. At the same time, consider how much your repayments could go up on a variable rate secured loan if interest rates rise. If you have a long term loan assume that interest rates could go up substantially.

Another downside of a fixed rate loan is that you may have to pay a financial penalty if you wanted to repay the loan early. This could perhaps be because you have the capital to repay your loan or because you want to move the loan to take advantage of a better offer or your changing circumstances.

If you have a long term secured loan, your lender may not offer (or you may not want) a fixed rate which covers the full term. If the fixed rate period is shorter than the term of your loan, take into account the possibility that at the end of the fixed term period interest rates may be higher. If they are, your repayments may go up substantially when the fixed interest rate term comes to an end.

Some lenders offer the option of having a part of your loan at a fixed rate and part at a variable rate. This is only likely to be a sensible option if the amount which you borrow is large and you will need to work out how changes in interest rates would affect you. As always check out the set up costs and repayment penalties.

Lenders

Lenders who offer secured loans include: