What is a secured loan? - Washington life tips

It’s very important to be aware of the different types of loans for people with bad credit. There are both secured and unsecured loans.

A secured loan means that the lender has a claim to your property if you cannot keep up with repayments.

There’s a chance that the interest rate will be lower for secured loans, however you need to think very carefully before taking one out.

If you default on your payments you could risk losing your home.

Is a secured loan the best choice for people with bad credit?

If you are a homeowner and have a history of bad credit you are more likely to be offered a secured loan rather than a personal loan.

A secured loan does offer more choice as:

• the eligibility criteria are generally less rigorous than a personal loan
• the amount you can borrow is higher than a personal loan
• the repayment term can be longer

However, the lending company is only able to offer these benefits because its risk is reduced by having your house as security against the loan.

What is a guarantor loan?

A guarantor loan is an unsecured loan aimed at those with poor credit scores, but to qualify for it you need to supply a guarantor – a person willing to meet your repayments if you find yourself unable to.

Your guarantor will need to have a good credit score, cannot be financially linked to you (ie your spouse). It’s also a good idea to make sure you are on very good terms and that they are fully aware of the risks, so if anything does go wrong, you wont sour your relationship.

Because there is someone able to ensure that payments will be met if you are unable to, the rates are typically lower than other unsecured bad credit borrowing options.

If you meet all your repayments some companies will also gradually drop the interest rate you are being charged to reflect your improving credit score.

What steps can I take to improve my credit rating

• Debt consolidation loan. If you want to control your debt by having one manageable, monthly repayment, a debt consolidation loan could help you.
• Pay off your loans. If you are able to pay off the loan and accrue no further debt, this will be seen as a positive value towards your credit rating.
• Check your credit report. It is a good idea to check your credit report before you apply for a debt consolidation loan or secured loan.