If a poor credit history is making it difficult to get a loan, you could consider a secured loan for bad credit. Because secured loans require you to put forward a valuable asset that you own as security, lenders can be more willing to take you on if your credit history is less-than-perfect. 

Typically, that asset will be your home – but regardless of the security you use, getting a secured loan with bad credit is a big decision. If you keep up with your monthly repayments, then your loan and interest should be paid off by the end of the loan term. However, if you fall behind with your payments, the lender is allowed to take your asset, meaning you risk losing your home.   

In the right circumstances, a bad credit secured loan could be something to consider, but there is a lot to think about first. 

It’s important to compare secured loans to find the most suitable loan for your circumstances. You will likely have fewer secured loans to choose from than someone with a better credit score, and they will come with higher interest rates.  

You should only borrow what you need and pay it back as quickly as possible, based on what you can comfortably afford to repay each month. Before applying for a secured loan for bad credit, you must consider whether you could keep making repayments if an unexpectedly high bill lands on your doorstep or you lose your job, for example. It’s also important to consider whether a secured loan is the right option for you at all.

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What is a secured loan for bad credit?

A secured loan for bad credit could provide you with a way of borrowing if a bad credit history means you’re struggling to get a loan elsewhere. 

With a secured loan, you put forward an asset that you own as security for the loan. Typically, the asset will be your home. Because lenders know they are entitled to take that asset to recover their money if you don’t pay back the loan, it might be easier to get a secured loan than an unsecured loan (also known as a personal loan) which offers a lender no such security. This is particularly the case if you have bad credit.

However, you could lose your asset to the lender if you are unable to keep up with your loan repayments. 

» MORE: Compare secured loan lenders

The pros and cons of secured loans for bad credit 

While there are certain advantages of bad credit secured loans that can help you out as a borrower, there are potential drawbacks that it’s vital you’re aware of too. 

Advantages of bad credit secured loans

• It may be easier to get accepted for a loan with bad credit if you are willing to put forward an asset as security. 
• You might find you’re able to borrow more with a secured loan than through an unsecured loan. 
• Interest rates on secured bad credit loans could be lower than those you would pay when trying to get an unsecured loan with bad credit. 
• Longer repayment terms might be available than on unsecured loans, giving the option for lower monthly repayments. 
• Keeping up with your loan repayments could help to improve your credit score over time.

Disadvantages of bad credit secured loans

• You risk losing the asset you put up as collateral for the loan – typically your home – if you don’t keep up with repayments.
• Interest rates are likely to be high because you have bad credit. 
• You’ll need a valuable asset that you’re willing and able to use as security in order to apply.
• Paying your loan back over a longer period of time to keep your monthly repayments low means you’ll end up paying more in interest overall.  
• Secured loans sometimes have high arrangement fees and other charges you’ll need to take into account.
• Failing to keep up with your repayments could damage your credit rating further still.
• If your loan has a variable interest rate, your repayments could increase. 

Why would I use a bad credit secured loan?

Taking out a bad credit secured loan is never a decision to be taken lightly. However, if you’re struggling to get accepted for a personal loan or can’t get a standard secured loan, it might be an option worth considering if a bad credit history is the main reason you’re getting rejected.

» MORE: See our best bad credit loans

What are the risks of secured loans for bad credit?

The main risk with a bad credit secured loan is that you could lose the asset you put forward as collateral to the lender. This could happen if you fail to make your loan repayments when you should, potentially leaving you without a home if that’s the asset you’ve used as security for the loan. There is also the risk your credit score could get worse if you miss repayments. And because you’re looking to borrow with bad credit, you can expect to pay higher interest rates than if your credit was good. 

How do I get a bad credit secured loan?

There are a number of lenders that offer secured loans for borrowers with less-than-perfect or bad credit scores. However, you’ll need to be able to provide the security that they require and show that you can afford to repay the loan. 

Being able to offer suitable collateral is key because this is what lowers the risk to the lender of offering you a loan. To prove the loan repayments are affordable, you’ll have to share details and proof of your income, regular outgoings and any existing debt.  

Am I eligible for a bad credit secured loan?

Different lenders tend to have different eligibility criteria that they want you to meet. This means it’s possible to have your application for a bad credit secured loan rejected by one lender but accepted by another.  

You might find it more difficult to get a loan if you have a particularly bad credit history. However, lenders also look at other criteria, such as your income, outgoings and employment situation, when making a decision as to whether to lend. The value of your security, whether you own it outright, and any other debt you might have will be important too. 

Using a specialist broker is one way of improving your chances of finding a lender who might be able to help.

Do I have to be a homeowner?

While you don’t always need to be a homeowner to get a secured loan with bad credit, your home is the type of security for the loan that will usually be required. Sometimes secured loans are referred to as homeowner loans or second charge mortgages for this reason. 

If you’re not a homeowner, or don’t want to use your property as security, there are some types of secured loan where you may be allowed to use alternative assets. For example, you might be able to use your car as security to get a logbook loan, or use jewellery or something else of value that you own at a pawnbrokers. Be aware however, that interest rates can be very high with both options, and you run the risk of losing your asset if you miss payments.  

If you can’t, or would prefer not to, put forward anything as security, you might consider an unsecured loan. 

» MORE: What can I use as collateral for a loan? 

What if I’ve been rejected for an unsecured loan?

Being rejected for an unsecured loan doesn’t automatically mean you’ll be turned down for a secured loan. 

Typically, it’s easier to get a secured loan with bad credit than an unsecured loan. This is because lenders know they can claim the asset you’ve put forward as security if you can’t pay back the loan. 

» MORE: How secured loans differ from unsecured loans

How do secured loans for bad credit work?

Bad credit secured loans work in much the same way as how a secured loan works if you don’t have bad credit. 

If you’re approved for a loan, you’re given a lump sum of money, which you’ll then need to repay, along with interest and any charges. You’ll pay off the loan by making regular repayments for a period of time that you’ll agree with the lender before taking the loan. Assuming you make all of your repayments when you should, the asset you put forward as security won’t be at risk and your debt should be entirely cleared by the time your repayment term ends. 

However, if you fail to keep up with your repayments, the lender is within its rights to take possession of your asset to get the money back that it is owed. 

How to get a secured loan for bad credit

Some bad credit secured loan lenders may be willing to accept an application from you directly, while others may only accept applications via a broker. 

One advantage of using a broker, such as our partner Norton Finance, is that they have access to a wide range of specialist lenders who might be more willing to lend you as a borrower with poor credit. This can make it easier to compare your secured bad credit loan options.     

» MORE: Compare best secured loans

Are secured loans for bad credit easy to get?

While there is no guarantee that you’ll be accepted for a secured loan if you have bad credit, the security you must put forward for the loan means you might find it easier than getting an unsecured loan with bad credit. 

When deciding whether to offer you any secured loan, a lender will also consider other factors, such as your personal situation and whether you’re able to afford to repay the loan.  

How much can you borrow with a bad credit secured  loan?

The amount you can borrow will depend on a number of factors, but if you meet the necessary checks, some lenders offer secured loans for up to £1 million, and potentially higher. These larger amounts may be available because the lender has the security of knowing it can claim your asset if you don’t repay the loan. Ultimately, however, how much you’re allowed to borrow will be decided on an individual basis and usually depend on:

• the value of the security you’re putting forward
• the amount of house equity you have in your property (if using your home as security)
• your income and outgoings
• the amount of debt you might already have
• your credit score and history 
• the lender’s individual criteria

Lenders will always look at how much you can afford to repay each month over the lifetime of the loan and your other financial commitments when calculating the loan amount you might be allowed. Each lender will also have a maximum loan-to-value (LTV) it is willing to lend. If this is set at 80% LTV, the most you’ll be allowed to borrow is 80% of your property’s value, including your existing mortgage. 

How long are the repayment terms on bad credit secured loans?

Some lenders allow secured loans with bad credit to be repaid over a period of up to 30 years. This is longer than you might find on an unsecured loan.  

However, while a longer repayment term can make your monthly repayments more affordable, it also means you’ll probably end up paying more in interest in total over the entire duration of the loan. The shortest term you may be able to find among bad credit secured loan lenders is one year.   

What happens if you default on a bad credit secured loan?

Failing to make your loan repayments and defaulting on a secured loan for bad credit can have serious consequences, including the loss of your home if that’s the asset used to secure the loan. If you think you’ll miss a repayment, or have already, speak to your lender straight away. You may also want to get in touch with a debt advice charity, such as StepChange or Citizens Advice. 

If you don’t reach an agreement with your lender and you miss payments, your lender could repossess your property. While this is usually a last resort, after all other avenues to repay what is owed have been exhausted, it is a real risk that should not be taken lightly.

Missing repayments also has the potential to negatively affect your credit score, which could make it harder to get credit in the future.

» MORE: What is a default notice?

Can you pay off a secured loan for bad credit early?

You may be allowed to pay off a bad credit secured loan early, but an early repayment charge may be payable for doing so. Check your loan agreement or speak to your lender to see if this penalty applies and how much it might cost.

What are the interest rates on bad credit secured loans?

The interest rate you’ll pay on a secured loan if you have bad credit will almost certainly be higher than if you were to have better credit. However, because you’re offering security for your loan, the rate might be lower than if you were to get an unsecured loan with bad credit. 

The rate you’re offered can vary between lenders. It will also depend on factors such as the size of the loan, the value of the property being used as security for the loan, and your credit score and wider financial situation. 

Rates on bad credit secured loans may be fixed or variable. With a fixed rate, you pay the same rate of interest for the duration of the loan, or for a set period within the entire term. The amount you repay each month should stay the same throughout the fixed rate period. A variable interest rate can change during the loan term, meaning the repayments you make have the potential to rise and fall. 

Comparing the cost of secured loans for bad credit

Beside the interest rate, it’s important to consider the other costs that typically apply when taking out a secured loan with bad credit. These may include arrangement fees, valuation fees, and broker fees, all of which can be expensive. 

To compare the cost of bad credit secured loans between lenders, look at the annual percentage rate of charge (APRC), which should take into account both the interest rate and the loan charges you must pay. This is similar to the annual percentage rate (APR) you’ll see next to unsecured loans. 

Always check with your lender how much your loan will cost overall. 

How long does it take to get a bad credit secured loan?

Secured loans with bad credit can often take anywhere between two and six weeks to arrange, so much longer than an unsecured loan. This is due to the detailed checks a lender must carry out on the asset you’re putting forward, particularly if it’s a property, and the legal work required to protect the interests of all parties. 

Can you get instant decision secured loans for bad credit? 

You may be able to get a quote for a bad credit secured loan relatively quickly online, but the work involved means you’re unlikely to get an instant decision guaranteeing the offer of a secured loan for bad credit. 

What credit score do I need for a bad credit secured loan?

This is likely to differ between providers, but lenders that offer bad credit secured loans accept that not everybody’s credit score is perfect. 

Some might be willing to lend to borrowers with defaults, missed payments, county court judgments (CCJs) and debt management plans. Others might also consider applications from those who have experienced the most serious credit problems, such as individual voluntary arrangements (IVAs) and bankruptcy.  

Remember also that the decision as to whether you’re offered a secured loan will not depend solely on your credit score. Other factors, such as the value of the asset you put forward as collateral and how affordable you’re likely to find a loan, are taken into account too. 

How will my credit score affect my loan application?

Your credit score can affect your ability to get a loan and the interest rate you might be asked to pay. Generally, the better your credit score, the easier it’s likely to be to get a loan and the more competitive the interest rate you might be able to find. 

That said, some lenders specialise in offering loans to those with bad credit. And it might be easier to find a loan if you can put forward an asset as security for a secured loan. However, trying to borrow if you have bad credit will almost always mean that the interest rates you’re offered are higher than if your credit was good, reflecting the greater risk it’s presumed you represent to a lender. 

Do I have to pass a credit check to get a bad credit secured loan?

Lenders which are regulated by the Financial Conduct Authority are the only ones we recommend you use, and they must carry out a credit check before you’re formally offered a secured loan. However, your eligibility for a loan will depend on other factors too. 

A soft credit check that doesn’t leave a mark on your credit report is typically conducted if you use an eligibility checker to find out if you’re likely to be accepted for a loan. A hard credit check, which is more detailed and has the potential to affect your credit standing, is then usually carried out when you make a formal application. 

» MORE: Soft vs hard credit checks

Can I be rejected for a bad credit secured loan if my credit score is too low?

There is a chance a lender will reject your secured loan application if your credit rating is too low to meet its lending criteria. However, as this criteria can vary between lenders, you might still find success applying with someone else. 

One advantage of applying for a secured loan if you have bad credit is that you’re offering the lender some security to fall back on if you don’t make your repayments. This might improve your chances of getting a loan with bad credit. Lenders also look at other criteria, such as affordability and the value of your collateral, when evaluating applications for a secured loan if you have poor credit.   

Can a secured loan for bad credit help improve my credit score?

If you consistently make your loan repayments on time and never miss a payment, it is possible taking out a bad credit secured loan could help improve your credit score. Of course, the opposite might be true, and your credit score could get worse, if you pay late or miss payments altogether. 

Can I get a better loan rate with a higher credit score?

A higher credit score usually means you’ll have more loan options and can open the path to lower loan interest rates. 

With a better credit score, there’s a chance you won’t need a bad credit secured loan and might be able to get a standard secured loan, where interest rates should be lower, instead. 

How else can I improve my credit score?

There are many ways you can try and improve your credit score including:

• making sure you are on the electoral roll
• correcting any mistakes you might find on your credit report
• paying your bills and any loan repayments on time
• reducing the amount of debt you have

» MORE: How to improve your credit score

How to compare secured loans for bad credit

Finding the best secured loan for bad credit for you involves thinking carefully about the amount you want to borrow and your ability to pay the loan back. How long do you think you would need to pay the loan off and what level of monthly repayments could you afford?  

To get a quote for a bad credit secured loan you’ll need to be prepared to share some of these  details and probably more, including why you want the loan. 

Why should I compare secured bad credit loans?

Taking the time to compare bad credit secured loans gives you the best chance of finding the right loan for you at the lowest interest rate. The more lenders you can compare, the more likely it is you’ll track down the secured loan for bad credit that suits you. The loan amounts, repayment terms, LTVs and loan features can all vary between providers, as well as the interest rates and charges. 

Do you have to use a broker?

There is no rule saying that you have to use a broker to get a secured loan for bad credit. 

However, brokers are usually best placed to know which lenders offer bad credit secured loans and what their lending criteria might be. They can help make the process of applying more straightforward as well. Some lenders only accept applications through a broker too.

» MORE: Compare secured loan lenders

Is a secured loan for bad credit right for you?

It may be worth considering a secured loan for bad credit if your credit score means you’re finding it difficult to get a personal loan. It may be easier to get a secured loan with poor credit because you must provide security for the loan, usually in the form of your home. For the same reason, secured loans usually allow larger loan amounts, perhaps to pay for home improvements or to buy a car. 

Importantly, however, you need to think about the risks of bad credit secured loans – getting one is not a decision to be taken lightly. The risk of losing your home, or whichever asset you put forward as security, is very real if you fail to make your loan repayments. Interest rates are usually high, so making sure you can comfortably afford the repayments each month is a must.

Due to the risks involved, it’s usually a good idea to talk to a financial adviser before taking out any loan secured against your property, particularly if you have bad credit.

» MORE: Should you take out a loan against your house?   

Alternatives to bad credit secured loans

There are a number of potential alternatives to getting a secured loan with bad credit that might prove less expensive, less risky or both, depending on your circumstances:

Unsecured personal loans for bad credit

Because personal loans are unsecured, it means they can be taken out without putting forward an asset such as your home as security. This reduces the immediate risk of losing your property if you don’t make repayments but does typically mean that personal loans tend to come with higher interest rates and might be harder to get, particularly if you have bad credit. 

» MORE: See our best bad credit loans 

Remortgaging

If you have enough equity in your property, you may be able to remortgage to release equity as cash. Depending on the mortgage rate you can get, your monthly repayments could rise and you might end up paying more mortgage interest overall. However, it might still save you money compared with a bad credit secured loan. 

» MORE: See current mortgage rates

Guarantor loan

Instead of using an asset as security, a guarantor loan requires that you find a friend or relative who is willing to repay your loan if you don’t. If you have bad credit, having a guarantor could give a lender the reassurance it needs to offer you a loan. 

Credit cards

If you’re looking to borrow a smaller amount in the shorter term, a credit card with an interest-free purchase period will work out cheaper than a bad credit secured loan if you  pay off what you owe before the interest-free period ends.

Borrow from family or friends

You may not necessarily want to ask, but borrowing from those you know and trust may be an easier way to get the money that you need. Importantly, to avoid the potential for confusion and acrimony in the future, when lending money to friends and family, there should still be some formality to the loan, and make sure you agree and write down the terms on which the arrangement is based. 

Help if you’re struggling with debt

Late repayments can cause you serious money problems. If you are struggling with debt, you can seek advice from a debt advice service, such as:

• Citizens Advice    
• MoneyHelper (formerly The Money Advice Service)   
• National Debtline   
• StepChange   
• The Money Charity   

About the Authors

Sarah Bridge

Sarah Bridge has been writing about business and finance since 2000. She was formerly Deputy Editor, Personal Finance, The Mail on Sunday and was previously the paper's Leisure Correspondent.

Read more about Sarah Bridge and explore their articles

Tim Leonard

Tim is a writer and spokesperson at NerdWallet and holds the Chartered Insurance Institute (CII) Level 3 Certificate in Mortgage Advice. He has over 20 years’ experience writing about almost…

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