Have you got a bad credit score but are still looking to borrow money? Thankfully there are a number of ways to still borrow that could even improve your credit score over time, as long as you can comfortably pay off your debts. This includes a secured loan, otherwise known as a homeowner loan or second charge mortgage.
If you have been thinking about taking out a secured loan to pay for a home improvement or another significant purchase, but have had issues with credit in the past, find out how you can apply and what the associated risks are too.
What are bad credit secured loans suitable for?
- Consolidate existing debts
- Pay a large bill
- Home improvements
- Paying for a wedding
- Paying for a big holiday
- Buying a new car
If you’re planning on making a significant purchase but have a poor credit score, then a secured loan might be an option for you, despite there being certain risks attached to it, which you should be aware of before making an application.
Since you normally have to put up a high value asset such as your home as collateral, it means that the lender can seize your home if you fail to repay what you owe. This can put you in a difficult position, so it’s important to note that secured loans are only suitable if you can afford to make all of the repayments.
What kind of bad credit is accepted for loans?
You can usually still be accepted if you have a very poor credit score, but it’s always up to the lender to set their specific criteria. This is why it’s so important to use an eligibility checker such as moneymatcher, as this will allow you to see which lenders are more likely to accept you as a customer.
However, if you have had serious issues with money management in the past, this could rule you out of being able to apply for a secured loan. This includes if you’ve been declared bankrupt or had a CCJ (County Court Judgement) handed out if you have failed to repay a previous debt.
Are secured loans the best option for bad credit?
Whilst a secured loan might be the best option for borrowing the largest amount of money, it also comes with associated risks meaning it isn’t always the best option when you already have a bad credit score.
Even if you do have a bad credit score, thankfully there are a number of options when it comes to borrowing. They include:
- Guarantor loan – if you have a friend or family member willing to be a guarantor for you, this might be a safer way of borrowing
- Short-term loan – you could always opt for a short-term loan if you want to borrow a small amount but pay it back quickly
- Car finance loan – this might be a good alternative if you want to buy a new car but don’t want to put up your home as collateral
- Credit builder card – ideal if you want to actively improve your credit score but not borrow a large amount at once
What is the difference between a secured and unsecured loan?
The main difference is that a secured loan always requires an asset for the loan to be secured to; most commonly a property that you own.
On the other hand an unsecured loan is not secured to anything, so is given out on the basis that you have a good enough credit score and are able to repay the loan on your own merit.
It means that an unsecured loan is a lot less risky than a secured loan, but you will have to have a good credit score in order to be accepted. Since you are taking on a lot more risk with a secured loan, it also means you might get a favourable interest rate from your lender as well. However, you will more often than not get a better rate through a standard loan.
How can I get a better loan?
The following actions will assist you in improving your credit score and subsequently allow you to get a better loan:
- Check your credit report – a credit report will allow you to see what your credit score is and give you the opportunity to fix any existing errors that might be affecting your score
- Get on the electoral register – making sure you’re on the electoral register will ensure you’re seen as a trustworthy borrower
- Disassociate yourself from other people and addresses – your credit score can be adversely affected by someone you had a joint account with in the past or an old address that has had previous tenants with a history of bad credit. You can disassociate yourself by getting in touch with Equifax, Experian or Transunion (formerly CallCredit)
Compare secured loans for bad credit
If you are happy applying for a secured loan, start off by checking your eligibility with moneymatcher. Just by entering a few personal details you will have access to a personalised list of financial products suitable for your circumstances, all without harming your credit score even further.
Alternatively, start comparing secured loans using the link below. Good luck!