What are bad credit secured loans?
Bad credit secured loans provide loans for customers with bad credit, which are secured against an asset already owned by that customer. Whilst unsecured and personal loans require a lender to take a risk lending money, bad credit unsecured loans are less risky, as the lender is able to repossess the asset the customer has secured their loan against, to recoup the money they are owed if the customer fails to keep up their repayments.
There are many different forms of asset which can be used to secure bad credit secured loans, with equity in a customer’s home being one of the most common. Lenders may accept anything of value for those who do not own their own home, and in the past jewellery, cars and paintings have been used to secure bad credit secured loans.
How do bad credit secured loans work?
Customers can take out bad credit secured loans whatever their credit score, but the borrowing process is still relatively complicated. To borrow money using bad credit secured loans, a customer must first work out the value of their assets. Whilst jewellery and paintings can be valued by independent sources for a small fee, working out the value of our home can be more expensive.
The most common way to secure your bad credit secured loans is through equity in your home. To work out how much equity you have in your home, you must know how much your home is worth, and how much your outstanding mortgage balance is. You then simply take away the value of your outstanding mortgage, from the value of your home and you will be left with the amount of equity you own in your home. You should be able to borrow up to this amount through bad credit secured loans.
If you find that you owe more money to your mortgage provider, than the value of your home, you’ll find that you are in negative equity, and you may need to find alternative assets to secure your loan against.
Are bad credit secured loans more expensive?
Customers with bad credit can expect to pay more for any sort of loan they take out, and bad credit secured loans are traditionally more expensive than traditional secured loans. Customers will pay less than they would pay for an unsecured or personal loan however as there is less risk to the lender.