You are planning to renovate your house and change the living room ceiling, and make it more aesthetic. You explored the best panelling ideas online and got excited about it. You finally got stuck over a design and want the same for your room. You checked the price and hesitated a little. Well, you don’t need to worry about the budget when it comes to upgrading your lifestyle.
You may get a loan even with bad credit to support the expenses. Does it not suffice your requirements? Don’t worry, check secured loans which help you borrow against your owned property. It grants you the flexibility to borrow a higher amount at low interest rates. Sounds surreal? Read ahead!
What do you mean by a secured loan?
A secured loan is a financial facility for individuals needing a higher amount (over £25000) for their needs, especially with bad credit scores. Here, a personal asset (car, property, jewels) acts as collateral. You may borrow against the value of the asset you pledge. You may get up to £2m for your needs, given the loan-to-value ratio of the asset.
The interest rates stay fixed over the loan term. It is a long-term agreement that lasts for about 15 years. Therefore, one must choose the right repayment structure. Avoid borrowing for a longer period unnecessarily. It is because the longer the term, the higher the costs.
One pays a fixed monthly cost for a long term. Individuals should repay the loan on time to keep the asset.
What struggles do individuals with bad credit face?
Individuals with a bad credit rating struggle to qualify with every mainstream provider. It is due to past credit and financial mistakes that are revealed on the credit report. It reveals casual and irresponsible financial behaviour on the financial front. Thus, they do not find a quote easily. Even if they do, the interest rates stay competitive.
The loan providers charge one to mitigate the risk of the borrower defaulting on the loan. It thus helps the person cover the costs. Moreover, not finding the ideal quote delays the opportunity. It prevents one from getting cash when one needs it the most.
How much can you borrow when you have a bad credit score?
The amount you get with a secured loan may vary according to different parameters:
a) The home’s value
You may get up to 80% of the home’s value as cash on secured loans, on average. However, you may get less if you are still on the mortgage.
b) Your income
Lenders check your income and expenses and make sure that you can repay the loan on time. Individuals with high income reveal the potential to repay the monthly payments without missing any. You just need to regulate the unnecessary expenses.
c) Your credit score
While secured loans are more flexible, your credit score still matters. However, individuals with better credit history may get cheap loans for very bad credit from a direct lender in the UK marketplace. A high credit score reveals better potential to manage the loan repayments. Therefore, you may get the loan cheaply then (on the interest front).
d) The loan provider’s policy
Different lenders have different rules about maximum loan amounts. Thus, analyse the rules and policies before applying. It will help you know the amount you may get, given your finances and requirements.
For example, if you want £2,00,000 and you owe £100,000 on your mortgage, you have exactly £1,00,000 equity in your home. Thus, you may get 80% of the property’s value (like here, £80,000 for your needs).
Why is it easier to get a secured loan with a bad credit score?
Yes, getting a secured loan is usually easy with a bad credit score. Here are the reasons why:
1) Offers lower risk for loan companies
Your collateral provides full protection if you cannot pay. The loan company may claim the asset to retrieve the loss.
2) Less focus on the credit score
These loans mainly focus on the asset value rather than the credit rating. It is the reason most individuals with bad credit find it easier to qualify for.
3) Specialised loan companies
You don’t need to worry if you cannot get a loan from the mainstream loan companies. Check the personnel dealing specifically with bad credit profiles. It increases your chances of qualifying and getting fair rates.
How to get a secured loan with less than ideal credit score?
Yes, you need to be a little conscious while seeking a loan with a poor credit history. Here is how to get a secured loan with bad credit history:
1) Check your credit report
Identify and get free copies from credit agencies like Experian and understand what loan companies see. They generally check the payment history, credit score, last debt paid, new debts, etc. You can improve it by repaying some of the pending dues.
2) Improve your approval prospects
Check what you can do to boost the approval prospects. Identify and list yourself on the electoral roll, and fix any mistakes. It helps you boost your credit score by a few points. The better the credit score, the higher the amount you may get.
3) Calculate your equity
Identify and work out how much the property is worth. How much do you owe on existing loans against it? It will help you know the equity and borrow accordingly.
4) Gather all documents
You will need proof of income, bank statements, mortgage statements and property valuations. Thus, keep it ready before applying for the loan. If confused, ask the loan company for details.
5) Use a loan calculator
A loan calculator helps you calculate the amount you should ideally borrow without affecting other payments. It gives you a fair view of things. You can know the approximate amount to borrow, the loan term, and the APR, and the interest costs. Accordingly, you may borrow the amount.
Bottom line
Yes, you may get a secured loan with a bad credit score online. It helps you qualify for a higher amount at a low interest rate. It eventually cuts down the costs and helps you finance the need quickly. Don’t choose an extended term unnecessarily. It may affect the interest liabilities. You may pay more interest in that case. Calculate and understand the total costs before consenting to the long-term loan.
