Navigating secured loans for bad credit: a comprehensive guide

If you have bad credit, most lenders will consider you a risky prospect. They’re very likely to ask for some form of collateral before offering you a loan. Here’s what you need to know about secured loans for bad credit.

If you have bad credit, most lenders will consider you a risky prospect. They’re very likely to ask for some form of collateral before offering you a loan. Here’s what you need to know about secured loans for bad credit.

Written by
Alex Hasty
Insurance comparison and finance expert
Posted
6 NOVEMBER 2023
5 min read
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What are secured loans?

Secured loans are those where you offer up some form of collateral in case you fall behind on your repayments. If a lender considers you a high risk or you want to borrow a particularly large sum of money, you’re more likely to be offered a secured loan.

Secured loans work in the same way as personal loans, except you risk losing the asset you put up as collateral if you don’t make your repayments.

If you have bad credit and don’t qualify for an unsecured loan, you may find it easier to get one that’s secured. But think carefully before taking on a secured loan as you could lose your home or other asset that you’ve used as collateral.

Loans and bad credit

Whether you’re accepted for a loan and the interest rate you’re offered will depend on your credit history, including your credit score – an independent assessment of how likely you are to repay money.

If you pay your bills late or get into large amounts of debt, you’re likely to have a lower credit score than someone who makes all their repayments on time.  And this will limit your choice when it comes to loans.

Having a good credit score makes it easier to borrow money at low interest rates. It also means you’re more likely to qualify for finance when it comes to buying a mobile phone or car, for example.

If your credit score isn’t what it should be, a bad credit secured loan could be an option for you. Or you could work on improving your credit rating.

Secured loans and bad credit: what you need to know

You may be able to get a secured loan if you have bad credit, although you might find your options are limited. As you’ll be offering up something valuable as collateral, your home for example, lenders are likely to be more willing to lend to you.

But be aware that if you do use your home as collateral for a secured loan, a lender can repossess it if you’re unable to pay back the debt.

Instant decision loans

You may see ‘secured loans for bad credit instant decision’ advertised online. With this type of loan, a lender will let you know immediately whether you qualify.

An instant decision loan be useful if you need to borrow money quickly, as you’ll have access to cash sooner than you might with an unsecured loan.

However, as with any type of loan, make sure you read the small print carefully. And always make sure you have a means of making the repayments.

What are the pros and cons of a secured loan with poor credit?

Looking for a secured loan with bad credit? Consider these advantages and disadvantages:

Pros:

  • It’s relatively easy to qualify
  • Interest rates may be lower than on unsecured loans
  • You can usually borrow more than with an unsecured loan.

Cons:

  • You risk losing your asset if you don’t make repayments on time
  • The loan may come with high fees 
  • The repayment term may be longer than a standard loan, meaning you’ll pay more in interest overall.

Secured loans in the UK market

There are lots of smaller providers in the UK that specialise in secured loans. Many of these are aimed at people with bad credit who wouldn’t otherwise qualify for a loan.

Before taking out a loan, always check that the lender is approved by the Financial Conduct Authority (FCA) by checking the FCA register.

Legal considerations

Secured loans give lenders the legal right to repossess your property (or another asset) if you don’t make your repayments.

Frequently asked questions

How to get a secured personal loan with bad credit

To find out what secured loans you’re likely to be accepted for before you apply, use our loan eligibility checker. It uses a soft credit search so won’t impact your credit score.

Then compare interest rates and terms on those loans you’re likely to be eligible for, make your decision and apply for the loan of your choice.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

What can be used as collateral for a secured loan for bad credit?

The most commonly used collateral for a secured loan is property. But you may find lenders who will accept other assets, such as cars, art or jewellery.

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

It’s possible that a lender might not accept your loan application if your credit rating is too low. But lenders have different eligibility criteria, so just because you’re rejected by one lender doesn’t mean you won’t be accepted by another.

Can a secured loan help me improve my credit score?

A secured loan could help you improve your credit score. If you show you’re a responsible borrower, by making all your payments on time for example, it could boost your credit rating.

Can I pay off a secured loan early?

You can usually pay off a secured loan early, but you may be charged an early repayment fee.

You’ll need to weigh up the cost of the early repayment charge (ERC) against the amount you’ll save in interest to see if paying off your loan early is the right option for you.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

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Alex Hasty - Insurance comparison and finance expert

At Compare the Market, Alex has had roles as Commercial Associate Director, Director of Trading and Director of Growth. He’s currently responsible for the development and execution of Comparethemarket’s longer-term strategic options, ensuring the right breadth of products and services that meet customer needs.

Learn more about Alex

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