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If you have a bad credit rating but you still need a loan, it can be tough to find a lender willing to lend you money. The upside is that there are options available to you if you have valuable assets, for example, a house or a car, as a secured loan will allow for you to borrow money against these assets.
Secured loan applications are just as easy to complete as personal loan applications, you just need your asset documentation to hand when filling out the form.
A secured loan is when you borrow money from a lender and use one of your valuable assets as security for the repayment of the loan. For example, if you have a mortgage, you can use your house as security against your secured loan.
It’s important to remember that secured loans do have an added risk to them. If you can’t make your repayments, then the lender can seize the asset that you have put against your loan, in this case, your house.
If you’re not a homeowner and you’re not sure if you have an asset that is valuable enough to take out a secured loan against, there are some options available to you. Some lenders will allow you to use a car, jewellery or their equivalent for your secured loan.
Secured loans are most useful for people that have a low credit score but have an asset that can be used as collateral. They can be easier to get than a standard personal loan as secured loans are not based on your credit history, and instead, use your assets as security.
Unlike personal loans, secured loans tend to have lower interest rates because the risk is considered lower as your asset provides the lender with the security of getting their money back.
One of the biggest benefits of a secured loan is that you can borrow a far higher sum of money than a personal loan. On average, people borrow £15,000 or more.
Secured loans typically have a longer repayment plan than the average loan meaning you don’t have to rush to pay all of the money back within, say, five years. Depending on the lender you choose, repayments can even be spread across 25 years or more
There are 3 different types of secured loan that you can apply for:
This option means you have an agreed set amount of money that you repay every month for the entirety of your deal. This is a great option for those who have a reliable income and can set aside the same amount of money every month for their loan repayments.
This secured loan gives you the opportunity to pay a set amount monthly for a “short-term”, typically one to five years. After this time, your repayment amount will change depending on your lender. This loan works well for people who need some initial breathing space for their repayments.
This is one of the more riskier options, as it is based purely on the Bank of England’s base rate changes. Your monthly repayments could continuously change, and even go up depending on the interest rate changes, meaning you pay more than what you initially hoped for.
Much like with all loans, secured loans also carry a risk with them. Depending on which asset you have used as security against your loan, there are various things that could happen should you not be able to make a repayment.
Secured loans are loans that require you to put an asset against your loan, so the lender can take this asset should you fail to pay your debt. These loans are popular for those who have a bad credit history and can’t get a personal loan.
Unsecured loans, on the other hand, are very much dependent on your credit history. So if you have a bad credit score, it’s very unlikely that you’ll be able to get an unsecured loan.
On the other hand, the benefit to this loan, if you can get it, is that you won’t have to put a valuable asset as a security, so you won’t risk losing your home or your car.
People that choose to get an unsecured loan can typically borrow less than if they were to choose a secured loan, as it’s at a higher risk to the lender. If you have no collateral as security, then the lender is reliant on you being able to make the repayments every month, on time. The variable rates on an unsecured loan also differ hugely to secured loans, as the APR you’re offered is decided based entirely on your credit score.
Secured loans vary in how long they take to process but typically, they will take between 3 to 6 weeks.
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