How to receive secured loans when you have bad credit

© Andy Dean Choosing A Home
© Andy Dean
Eligibility criteria and requirements
Home equity

Your property will be professionally valued to establish whether you have sufficient equity. Home equity can be defined as the difference between the value of your property and the loans that are secured against it. The lender wants to make sure that if you default on the agreement, there is sufficient equity to pay off the loan.

If you have bad credit, you’ll need a minimum of 20% equity after the deduction of your new loan.

Low income-to-debt ratio

Lenders want to make sure that the repayments are affordable to you. It’s not in the best interests of either party to establish an unsustainable borrowing arrangement, so you’ll need to demonstrate that your income-to-debt ratio is less than 36%. If possible, use savings to reduce your overall credit utilisation figure.

Permanent employment

A fast secured loan is only available to people who have a permanent full-time job. This means that, if you’re on a temporary contract or are in your probationary period, your application will be declined. Home credit loans are a long-term financial commitment so an unstable or unreliable source of income dramatically increases the likelihood of default.
Risk avoidance
Over-borrowing

It can be very tempting to make your secured loan application for the maximum amount, but this is inadvisable. The money that you’ve borrowed will need to be repaid, and quick secured loans put your home at risk of foreclosure. You may need to borrow money in the future, so be sensible so that your ability to do so isn’t compromised.

Priority debts

If you run into financial difficulty, your mortgage and secured personal loan are considered to be a priority debt. Don’t pay all of your smaller bills because they’re easier to manage, pay as much as you can afford towards your secured credit agreements. If you’re unsure how to proceed, seek professional advice from a non-profit credit counselor.

Insurance coverage

You may wish to take out insurance to cover yourself against poor health or unemployment. If you fall upon hard times, you’ll be in a better position to continue to make the monthly repayments. If you know that you’re about to lose your job or already have a serious illness, your insurance policy will exclude these from coverage.