Are secured short term loans available with bad credit?

A bad credit score reflects irresponsibility in your demeanour. Despite having a strong repaying capacity, the repercussions of a poor credit report are far-reaching and cannot be overlooked. One of the reasons for loans being exorbitant is a subprime credit score. As the default risk is way too high, lenders charge high interest rates. However, this is not the only reason why expensive deals are offered to you. Subprime financial products are often unsecured, and therefore, lenders do not have the right to repossess any asset of yours to liquidate in order to recover their money.

Fortunately, there are a few lenders who help provide secured subprime loans. It means your loan will be secured against an asset that your lender could repossess as immediately as you make a default to cover their money back. Secured loans with bad credit are available, but there are a few things you would want to know.

Long-term loans are generally secured

If you are looking to borrow a small amount of money with a poor credit rating, you do not have to put down security. On no account would a lender require you to secure your loan against your personal assets. For instance, if you need money to meet unforeseen expenses, you can borrow money without any collateral. These loans are called instant or emergency loans. An instant loan carries a paltry sum. The maximum size of these loans cannot be beyond £1,000. However, most lenders would put a cap of £700 in order to mitigate the risk of default.

As these loans come with a paltry sum, you will be required to discharge them in fell one swoop on the due date. The repayment length would not be more than 14 days or a month. There is no collateral required to apply for short-term emergency loans with bad credit.

However, some online lenders also provide subprime loans for a shade longer repayment term. It could be up to three months, six months, a year, or even longer. These loans are called personal loans or unsecured loans. They are instalment loans, repaid over an extended period of time. The maximum repayment term for personal loans could be up to five years.

It depends on the policy of a lender and how long repayment terms they would offer. Some lenders have the policy to offer these loans for a period of a year, while others could grant these loans for a period of three years. However, the size of the loan and your repaying capacity also determine the repayment length of these loans.

Personal loans could also be secured without any collateral. However, in most cases, the repayment term would not be more than a year or 18 months, but secured loans are usually long-term loans such as mortgage and auto loans. However, if you need these loans for your business, they might be required to be discharged within a year.

Auto loans are paid back within three to five years, while mortgages could be paid back over a period of 10, 15, 20, or more years.

Some lenders may allow you to secure a small loan

Although lenders do not require collateral to qualify for personal loans, there are a few direct lenders that may want you to put down collateral. While applying to a direct lender for bad credit loans in the UK, you should ask them if there is any possibility of securing these loans against collateral, as it depends on the policy of a lender whether they would approbate or not. However, if it is possible to secure a short-term loan, make sure that you will qualify for lower interest rates.

One of the biggest benefits of collateral is that it alleviates the risk of default. Now, your lender has the right to repossess your asset if you fail or refuse to pay off the debt on time. Secured bad credit loans generally carry lower interest rates than subprime personal loans. Make sure that you have confirmed all these details before signing the contract.

However, the collateral you put down should be in the form of any asset. A couple of lenders would be required to pay upfront cash. Beware of such lenders. Any advanced cash cannot be considered collateral, though lenders try to make you think that way. The upfront payment you make is deemed to be an advanced fee. This is not collateral, nor this can be considered. Such lenders charge advanced fees as their profits.

You will not see any reduction in interest charges. Such loans are exorbitant despite paying advanced fees. No registered lender will ever lend you money in exchange for advanced fees. Lenders who do so could be loan sharks. You should always prefer not to fall into their trap.

Tips for qualifying for lower rates

It could be challenging to qualify for lower interest rates when your credit rating is not so good, but there are still some ways to improve your chances:

• You should always try to keep your credit rating fair. A decent credit report is still required. If your score is in very poor range, it will be difficult to obtain competitive interest rates.
• You should be free from any debt obligations. When lenders find that you do not have any other debt to pay off, they will be able to lend you money at better interest rates. This is because it reduces the default risk.
• Make sure your credit utilisation ration is low. It should not be less than 25%. However, you will be able to get even better interest rates if they are lower than this.
• If you have any outstanding debts, they should still not be too much. Your debt-to-income ratio should be less than 30%. The lower, the better.

Summing up

Secured loans are available for bad credit borrowers. Most of the time, these loans are long-term. However, some lenders may provide you with secured loans even though the repayment term is shorter than five years. You should always try to keep your overall profile good so you can qualify for lower interest rates.