As the name suggests, bad credit secured loans exist to help people who would like to benefit from the advantages of a loan – but who also have credit history issues on their records.
What is your credit history?
For many decades now, information relating to financial transactions has been stored, for a period of time, in central databases. This is nothing new!
This information relates to things such as late credit card payments, late loan repayments, loan defaults, credit application refusals, CCJs (County Court Judgments) and bankruptcies etc.
The companies that store and manage these database services supply the information they collate to organisations that wish to use it.
What is it used for?
Companies may use these services to try and ascertain your overall creditworthiness, such as if you are in the process of applying for a loan, car finance, a mortgage, a new credit card, a new store account and many other such circumstances.
This process is typically called a ‘credit reference’ or ‘credit scoring’.
Contrary to what you may believe, having some forms of problem on your history records does not necessarily mean that you will fail to get the facility you are applying for.
The interpretation of your credit history is based upon complicated statistics and weighting factors. Different facility or loan providers may read the statistics differently, depending upon their individual company policies and view of life.
You may have a poor credit history if you have:
- not paid your bills on time;
- maxed out your credit cards;
- been a victim of ID fraud that has impinged on your credit rating;
- many open lines of credit, typically from a number of credit cards;
- filed for bankruptcy or have CCJs;
- had tax problems in the past.
Bad debt loans
It is extremely difficult to be general about the outcome of any application you may make, without being able to see the totality of your financial position.
Nevertheless, if you are applying for unsecured loans, you may find that potential providers will typically have a higher degree of sensitivity towards credit history problems than would be the case with secured loan providers.
That is because in the case of secured loans, the provider has the additional comfort of knowing that you are prepared to guarantee your repayment of the monies by securing it to one of your assets.
As a result, bad credit secured loans may be available whereas unsecured bad credit loans (also called bad debt loans) may be rather harder to find.
One of many factors
Although your credit history will be a significant part of the evaluation of any loan application you make, it is only one component.
The provider will also be looking closely at things such as your income level, the value and nature of the assets you are offering as security and the purpose of the loan.
Even if you do have glitches on your history files, they may be offset by some of these other factors.
Some bad credit secured loans may be offered at slightly higher interest rates than would be the case if you had a perfect credit history.
Of course, any provider of bad credit secured loans may reluctantly decide to decline your application if your credit history records are exceptionally problematic or they feel that agreeing a loan is not in your best interests.