Secured loans for bad credit allow you to borrow money using a property as security. A secured loan for poor credit borrowers can allow you to borrow more money at a lower interest rate and over a longer term than would be possible using an unsecured loan.
In this guide we break down what secured bad credit loans are, who qualifies and how the application process works.
What is a bad credit secured loan?
A bad credit secured loan is a type of debt taken out against property, that is available to borrowers with a poor credit rating.
They work in much the same way as unsecured loans (also known as a personal loan), in that the loan amount is released and then repaid over an agreed term through regular monthly payments.
They are a way of borrowing money that involves allowing your lender to take a legal charge over the security property.
A secured loan (also known as a homeowner loan) can be used for the following reasons:
- Consolidating existing finance including loans, cards and overdrafts
- Repaying unsecured debt to save money on your monthly outgoings
- To fund home improvements
- Repaying other debts
How to get a secured loan for bad credit
The best way to make a secured loan application is to use a specialist broker. They will help you to find the best secured loan for your personal circumstances.
A good broker will be able to navigate around your poor credit history to find a suitable product.
The loan you’re offered will depend on your property value, how much equity you have, your ability to afford the loan repayments and the information held on your credit report.
Watch our bad credit secured loan video
What does a poor credit secured loan cost?
Secured loans typically cost around 7-9% per year for borrowers with a bad credit rating. The level of your monthly repayments will be impacted by the loan term and loan amount as well as the interest rate charged.
What interest rate will I pay?
Bad credit secured loan rates are typically much better than you on an unsecured alternative. Interest rates on secured loans for poor credit can be as competitive as 3%, though you’ll probably pay closer to 5% or even 10%.
When considering a secured loan for bad credit, weigh up the length of the loan as well as the interest rate. The longer the loan lasts, the lower the monthly repayments, but the more you will pay overall. Let’s assume you are borrowing £30,000 at an interest rate of 6%. This will break down as follows.
|Monthly repayment||Total repayable||Total cost of loan|
|5 year term||£577.77||£34,666.17||£4,666.17|
|10 year term||£330.67||£39,680.65||£9,680.65|
|15 year term||£250.59||£45,105.88||£15,105.88|
|20 year term||£212.19||£50,925.03||£20,905.23|
|25 year term||£190.39||£57,115.88||£27,115.88|
As you’ll see, you can save a lot of money by reducing the term of the loan – but a fine balance must be found. It’s better to pay more overall than to risk falling behind on the repayments.
An experienced secured loan broker can find you the best interest rates and set-up costs, including fixed rate secured loans, and help you to determine the right term.
Are there any other fees to pay?
As well as the interest you’ll pay on your secured loan, there will also be additional fees to consider. These will vary according to the lender, so always carefully read any paperwork.
Standard fees to expect include:
- Broker fees – often up to 12.5% of the loan amount (£5,000 on a £40,000 loan) although we only charge a low, fixed £1,495 broker fee on completion of the loan with no upfront fees.
- Valuation fees – where a valuation is required, a fee is usually charged for this.
- Lender fee – also known as product fees may be charged on some products.
- An ‘early exit’ fee if you choose to repay the loan early – this is known as an early repayment charge.
Most lenders will add these fees to the total amount repayable, so the expense will be spread throughout the loan term.
Can I get a better deal if I have a better credit score?
Yes, secured loans (also known as homeowner loans) are usually cheaper for borrowers with a higher credit score. How much better will depend on the level of bad credit that you have, as not every poor credit history is equal.
Examples of issues that will affect your personal circumstances and credit report are missed repayments on existing debts, bad bank account conduct, a county court judgement, defaults, IVAs, bankruptcy and missed payments on a mortgage.
Can a secured loan improve my bad credit score?
Yes, a secured loan can improve your bad credit score if you make all of your monthly repayments on time. Of course, this might be difficult given the rising cost of living, but it should still be the aim.
Of course, if your financial history is littered with missed payments, then as with other types of bad credit loans, it will take time to increase your credit history.
How can I improve my credit profile?
To improve your poor credit, there are several steps to take. They are:
- Join the electoral register
- Use a credit monitoring service such as Equifax, Experian or Credit Karma
- Pay all of your debts and outgoings on time
- Reduce your reliance on borrowing
- Reduce your credit utilisation ratio
What are the pros and cons of a secured loan with poor credit?
There are several pros and cons of a secured loan with bad credit. They are the following:
- It may be easier to get a low credit score loan that is taken against property than an equivalent unsecured loan.
- Secured loans tend allow you to take a larger loan amount.
- They can be arranged quickly compared to a mortgage or equity release.
- You have a greater chance of approval as you’re offering your own property as collateral.
- Your home may be at risk if you fail to keep up repayments on a loan secured on your own home.
- Consolidating debt from consumer credit onto a secured loan over a longer term may increase the total interest charges.
- Setup costs, such as a lender fee and broker fee can significantly add to the cost of borrowing.
How to find the best bad credit secured loans
To find the best deal you should follow the same steps as when you’re looking for a standard secured loan. That involves asking yourself some key questions, which are:
- Is the loan amount requested going to be enough for your needs?
- Does the chosen lender accept borrowers with poor credit?
- How does the deal offered compare to others in the market?
- Will you be able to manage the repayments comfortably?
- Are the broker and lender fees fair?
- Is the rate fair given your credit record?
Do you have to use a broker?
Most lenders won’t work directly with the public; therefore, a broker is usually required.
Working with a broker, not a lender is common in the UK, but it’s important that you still look for the best deal from multiple sources to avoid paying high fees. As with any financial product, comparison is key.
Are they easy to get?
Yes, compared to the unsecured equivalents, it’s much easier to qualify for these loans, especially if you have a bad credit rating.
This is because the lender has security, which can ultimately be repossessed and used to get their money back if the loan falls into arrears.
As these loans can be taken over a longer term, most deals are more affordable and could make it simpler to pass the affordability checks.
What if I’ve been refused for an unsecured loan?
Even if you’ve been refused a personal loan, you could still qualify for one of our secured bad credit loans, due to the fact that you’re offering a property as security.
In fact, its common to see borrowers turn to secured borrowing as a method of getting the funds they needs after being rejected by their bank for unsecured finance.
Being refused for unsecured debt should act as no barrier to securing one of these types of mortgages.
Why choose a secured bad credit loan?
There are a number of reasons to consider secured loans if you have suffered credit issues in the past. They are:
- These loans can be taken over more years and therefore the monthly cost is usually more affordable than other types of loans
- The rate charged on this type of loan is lower than other types of loans and cards
- Even if your credit score is poor, you’re likely to qualify
- There are a wide choice of lenders who all offer different deals and accept a different credit score band.
- It’s easy to compare deals between lenders due to standard paperwork
- Funds can be raise quickly compared to mortgages
There are many reasons to consider this type of loan, and the key benefits will vary depending on the circumstances of the borrower.
If you’re interested in how you could benefit, or wonder what deals we could offer you, get in touch with our team of experts to find out more.
Things to know before taking out a loan secured against property
When taking loans for bad credit, you should always be careful to avoid making your financial position worse. There are a few key things to consider before you commit. They are:
- Only borrow what you need, work out how much you need and only take that
- Make sure you’re repaying over a reasonable period of time. A longer term will be cheaper monthly, but cost more overall. A shorter term will mean higher monthly costs, but less total interest.
- Ensure the loan is affordable, even after other mortgages, loans and any credit or store card has been paid
- Check that your lender and broker is reputable before applying and avoid paying excessive fees to a broker.
- Consider the impact of rate rises and whether this is something that would remain affordable
If you’re unsure, always seek expert advice before proceeding.
What are the risks of poor credit score loans secured against property?
The main risk to consider comes from the failure to keep up repayments. As a property is taken as collateral for these loans, the security property will be at risk should you fall into arrears.
As a borrower with less than perfect credit is already in a vulnerable position, proceed with caution to ensure that risk is minimised.
Should I get one?
This is an individual consideration and you should think carefully before securing a loan against your property and how it could impact your financial future.
That said, if a loan with bad credit could better your individual circumstances by improving your credit score, repaying other debts (called debt consolidation), reducing your annual interest rate or funding home improvement projects then it may be a good idea.
What are the alternatives to a secured loan for bad credit?
While we offer secured loans, they aren’t always the most appropriate option, in some cases, an alternative option may be better. Before committing to this type of finance, consider these alternatives:
- Bridging loans – A bridging loan is a short-term loan that can be used when funds are needed quickly. They are usually available for 1-12 months and while they come with higher rates than a traditional 2nd charge loan, you may pay less overall if funds are needed for a very short time.
- Remortgages – A remortgage could allow you to borrow from a single mortgage lender, rather than having two charges on your property. In some cases, you may be able to access better deals by going down this route.
- Using savings – If you have savings, consider using them rather than taking out loans for bad credit. Consider the fact that the interest you can earn on savings is lower than what you’ll pay for loans.
- Bad credit loans – A simple loan or even a credit card may be more appropriate if you’re looking to borrow smaller amounts and need the funds quickly. While the monthly cost may be higher than other forms of credit, you will usually repay the debt quicker and may be less overall. Always be careful when using cards to fund your lifestyle.
- Seek debt advice – If you’re struggling to manage your credit or loans, you should seek expert help from debt charities such as StepChange, or contact the Citizens Advice Bureau. They will offer free advice on how to best handle the issues you’re facing and help you to find a route forward with your credit or loans.
FAQs for secured property loans UK
Here are some of the common questions that we’re asked by borrowers who are looking to get a secured loan with bad credit in the UK.
What can I use as collateral for secured loans bad credit?
Property is usually used as security for secured loans, either your own home or an investment property. In most cases, lenders expect a property with sufficient equity and at a reasonable LTV in order to lend.
With most lenders, there can be only one legal charge ahead of theirs, meaning loans must be taken on a second charge basis. Multiple mortgages or loans are usually unacceptable to most lenders.
In some cases, other security can be taken, such as cars, business assets, and other valuable items can be used, although this isn’t something we generally offer.
Are these loans easy to get?
Yes, compared to unsecured borrowing, secured finance is easier to get in the UK. That is due to the fact that your chosen lender has collateral due to the legal charge taken over your property.
Can I be rejected because my credit score is too low?
Yes, you’re never guaranteed to be accepted for loans. That said, as you’re offering security to the lender, you have a much better chance of approval than other forms of unsecured bad credit loans.
If you’re unsure whether you’ll qualify for our secured bad credit debt products, read our guides or speak to our team to see if we can help you to make savings on the cost of borrowing.
Can I pay back the money early?
Yes, you can repay a secured loan early in most cases. However, as with other types of credit, it’s advisable to always carefully review the small print before agreeing to a loan.
Some loans come with early repayment charges in the early years, so it may not be the best move to repay early.
As such, it’s key that you always check this before committing to an early settlement.
Who will value my property when applying for loans?
Your property value is very important to your lender as it is the sole security for the loan, and as such, it must be verified.
The lender will arrange a valuation, either physically by a chartered surveyor, or digitally, using a desktop, or automated valuation model (AVM).
How much can you borrow with a secured loan?
We can offer bad credit file secured loans from £10,000 with no maximum loan size.
We’re able to theoretically offer loans in the millions, although in reality, a remortgage may be a more suitable form of credit in this scenario.
How long does it take to get my money?
Secured loans bad credit usually complete in 2-4 weeks, with most coming in on the shorter end of that spectrum.
Can you pay back these loans early?
Yes, you can repay these loans early, but in some cases may be charged an early repayment charge for doing so.
When you get a secured loan, as with any other debt, the terms are clearly laid out upfront and any repayment penalties are made clear.
What documents will I need to provide when I apply?
When applying for credit backed by a property, the lender will require the following:
- Proof of ID
- Proof of address
- Bank statements
- Proof of income (payslips of HMRC tax documents)
- Details of your credit record
- Accounts (in some cases for self-employed applicants)
Do I have to be a homeowner in order to qualify for secured loans with a poor financial history?
Yes, to get a credit using secured property loan with bad credit rating, you need to be a homeowner.
Think carefully before securing loans, credit or cards against your property.
This is because it is a type of debt secured against property, so naturally, you will need to own a property to secure credit against it.