Yes, most specialist lenders will consider a secured loan with defaults on your credit file, particularly if they are settled and more than 12 months old. A secured loan, also called a homeowner loan or second charge mortgage, is backed by the equity in your home, so lenders can look past events that would end an unsecured application. Small defaults on utility or phone accounts are commonly ignored altogether. Larger or unsettled defaults reduce the maximum combined loan to value, often to 70% to 75%, and place you in a higher rate tier until they age.
Settled defaults over a year old are among the most routinely considered forms of adverse credit in the second charge market. Recent, large or unsettled defaults narrow the choice and cost more, but rarely close it, provided your mortgage has been paid on time.
- A default stays on your credit file for six years from the default date, whether or not you later settle it.
- Lenders measure a default's age from the date it was registered, not from the date you paid it.
- Many specialist lenders ignore defaults under £250 to £500 and those on utility, phone or broadband accounts.
- Most lenders count defaults registered in the last 24 or 36 months and disregard older ones.
- Checking your options will not affect your credit score.
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How lenders typically treat it
| What lenders look at | Typical position |
|---|---|
| Settled default, over 24 months old | Considered by most specialist lenders, often at or near their standard rate and LTV. |
| Settled default, 12 to 24 months old | Considered by many lenders, commonly one pricing tier below clean credit. |
| Default registered in the last 12 months | Considered by a smaller group, usually at reduced LTV; some want it settled first. |
| Unsettled default | Considered by some lenders up to a value cap, or on condition it is paid from the loan on completion. |
| Utility, phone or broadband defaults | Commonly ignored regardless of age, particularly under £500. |
| Number of defaults | Commonly two to three in the last 24 months at most; some lenders apply a combined value limit instead. |
| Maximum combined LTV | Commonly 70% to 80% with defaults, against 85% or more for clean credit. |
| Rate | Tiered above prime secured loan rates by how recent, how large and how many the defaults are. |
A general guide to how the market behaves, not a promise about any lender. Criteria change and every case is assessed individually. See the lender criteria database for named lenders.
Can you get a secured loan with defaults on your credit file?
Yes. A default is what a lender records when an account has fallen so far behind, typically three to six months of missed payments, that it closes the account and treats the whole balance as due. It is one of the most common adverse credit markers in the country, and the specialist secured loan market is built around it. Lenders including Pepper Money, Norton Home Loans, Evolution Money, Together and Equifinance publish criteria that name defaults explicitly and set out how old, how large and how many they will consider. Our lender criteria database lists those policies side by side.
The reason a second charge lender can take this view is the security. The loan is backed by the equity in your home, so the lender's risk is lower than an unsecured lender's, and it can price a credit history rather than refuse it. That pricing takes the form of tiers. Each lender has a clean-credit tier and then one or more adverse tiers, each with its own rate and maximum combined loan to value. Your defaults, their dates, their amounts and whether they are settled decide which tier you land in.
What lenders care about most is not the default itself but the story around it. A cluster of defaults from a period of illness or redundancy, followed by two years of every payment made on time, reads as a resolved episode. Defaults still being registered in the last few months read as a problem in progress, and that is the case that fewer lenders will consider. In both cases, the one thing that has to be clean is the mortgage: a lender will forgive a defaulted store card far more readily than a missed mortgage payment.
Does it matter whether the default is settled?
It matters, though less than many people expect. A settled default is one where the balance has since been paid in full, and the creditor has marked it as satisfied on your credit file. A partially settled default is one where the creditor agreed to take less than the full amount. An unsettled default is still owed. The default itself stays on your file for six years from the default date in all three cases; settling it does not remove it, but it does change how a lender reads it.
Many lenders are indifferent to settlement for small or older defaults, and will consider an unsettled default up to a value cap, commonly a few thousand pounds in total. Above that, or for more recent defaults, they will often require settlement as a condition of the loan, with the balance paid to the creditor directly from the loan on completion. That is a normal part of a consolidation, since the defaulted account is one of the debts you are clearing, but it does reduce the amount left for everything else.
Partial settlement sits in between. Some lenders treat a partially settled default exactly as a settled one; others treat it as unsettled because the creditor still shows a shortfall. If you are negotiating a reduced settlement with a creditor now, ask them to mark the account as satisfied rather than partially satisfied, which some will do if you ask.
One overlooked point: the default date is what lenders measure age from, and creditors sometimes register defaults months after the account actually went bad. Guidance from the Information Commissioner says the default should normally be dated around the point the account was three to six months behind. If yours was registered late, you can ask the creditor to correct the date, which can move you into an older and cheaper tier.
How do lenders count defaults, and which ones do they ignore?
Lenders count by number, by value and by date, and every lender's rules differ slightly. The commonest pattern is a look-back window, usually 24 or 36 months, with a maximum number of defaults inside it, often two or three. Defaults older than the window are frequently disregarded entirely, provided your file has been clean since. Some lenders replace the count with a combined value limit, for example no more than £2,500 of defaults in the last two years, and a few use both.
Within that, several kinds of default are commonly ignored. Small defaults, under £250 or £500 depending on the lender, are usually excluded from the count because they say little about your ability to run a mortgage-sized commitment. Defaults on utility, mobile phone and broadband accounts are widely ignored whatever their size, since they often arise from disputed final bills after a house move rather than from financial strain. Some lenders extend the same treatment to mail order and catalogue accounts.
What is counted is defaults on credit cards, personal loans, car finance and overdrafts, particularly if they are recent, unsettled or large. Two of those in the last year would put you in a small group of lenders at low loan to value; two of them settled three years ago would barely register at many.
Combined loan to value is where the counting lands. It is your mortgage plus the new secured loan as a share of your home's value. On a £250,000 home with a £150,000 mortgage, an 80% cap allows up to £50,000 of secured borrowing and a 70% cap allows £25,000. Equity, in other words, buys tolerance: the more of it you hold, the more a lender can look past. Our guide to how much you can borrow explains the calculation.
What does a secured loan with defaults cost?
More than a clean-credit secured loan, by a margin that reflects the tier. A single settled default from three years ago may add little or nothing to the lender's standard rate. Several recent defaults will add noticeably more and may also lower the maximum loan to value. Fees are the same set as any secured loan: a lender arrangement fee, a valuation, any broker fee and a small legal charge, usually added to the loan. Our guide to secured loan rates explains how the tiers work.
Even at an adverse credit rate, consolidating can reduce your monthly outgoings, because credit card and unsecured loan rates are usually higher again. The example below uses the fixed illustrative secured loan rate used across this site. Someone with recent defaults should expect the adviser to come back with a higher rate than this, and should judge the loan on those figures.
Illustrative rates: The rates in this example are fictional and used only to show how the numbers work. They are not an offer. Your actual rate may be lower or higher and will depend on your circumstances, your property and the lender. Consolidating debt over a longer term can mean you pay more interest overall, even if your monthly payment falls.
| Position | Amount |
|---|---|
| Current monthly payments (credit cards £12,000 at 24.9% and a personal loan £8,000 at 12.9%) | £532/month |
| New secured loan payment (£20,000 at 7.9% over 15 years) | £190/month |
| Total repayable over the 15-year term | £34,196 |
In the example the monthly cost of £20,000 of debt drops from £532 to £190, but the total repaid over 15 years is £34,196, because the balance runs far longer than the original card and loan would have. At a defaults-tier rate the monthly saving is smaller and the total is higher. If a defaulted account has to be settled from the loan, its balance comes out of the £20,000 before anything else is cleared, so ask the adviser for the numbers with and without it.
What should you do before applying with defaults?
Start with your credit files, all three of them, because lenders search different agencies and the default may show differently on each. Check that every default is genuinely yours, that the amount is right, that the default date matches when the account actually went bad, and that settled accounts are marked as satisfied. Correcting an error or a late default date can move you into a better tier without spending a penny.
Then settle what you can, starting with the newest and largest. A settled default from the last year is considered by more lenders than an unsettled one, and settlement from savings means the full loan is available for other debts. If you cannot settle first, tell the adviser which defaults are outstanding so the application goes to a lender that will pay them on completion.
Keep everything else immaculate in the meantime. Lenders weigh recent conduct heavily, so six or twelve months of on-time payments on the mortgage, the remaining cards and the household bills do more for your tier than almost anything else. Avoid new credit applications, since each one adds a search to your file.
Finally, be honest with yourself about why the defaults happened. If they were a resolved episode, a secured loan to tidy up what is left can be sensible. If they are the visible part of a budget that still does not balance, adding a loan secured on your home is the wrong answer. A secured loan is secured on your property, and if you do not keep up the repayments your home may be repossessed. MoneyHelper, StepChange and Citizens Advice offer free, impartial debt advice, and speaking to one of them before you apply costs nothing and may change the plan.
What improves your chances
- Get all three credit reports and check each default's amount, status and default date; ask the creditor to correct anything wrong.
- Settle the newest and largest defaults first where you can, and make sure the creditor marks them as satisfied.
- If a creditor registered a default long after the account went bad, ask for the date to be brought forward.
- Keep the mortgage and every remaining account paid on time; lenders weigh the last 12 months of conduct heavily.
- Do not apply for new credit in the months before, since each search adds to the picture of strain.
- Give the adviser the full list of defaults with dates and amounts, so the application goes to a lender whose window fits.
Alternatives worth considering
A remortgage is the other consolidation route, and some adverse credit mortgage lenders will consider settled defaults if your deal has ended or the early repayment charge is small, usually at a lower loan to value; our remortgage with bad credit page sets out what is realistic. For a smaller sum, a specialist unsecured lender may consider defaults at a higher rate without putting your home at risk. And if the defaults are still being added to, a debt management plan through a free debt charity may be the right step before any new borrowing; our comparison with a debt management plan explains the difference.
Worried about debt? Get free advice first
If you're struggling, it's worth speaking to a free, impartial debt advice service before you borrow more. They don't sell anything and won't judge your situation.
- MoneyHelper: Free, impartial debt advice backed by government
- StepChange: The UK's largest free debt charity
- Citizens Advice: Free, confidential advice on debt and money
Checking your options with Equiclear will not affect your credit score.
Frequently asked questions
Can I get a secured loan with an unsettled default?
Some specialist lenders will consider unsettled defaults up to a combined value cap, or on condition they are paid from the loan on completion. Settling before you apply opens up more lenders and better terms, and leaves more of the loan for your other debts.
How long after a default can I get a secured loan?
There is no fixed waiting time. A few lenders consider defaults registered in the last 12 months, usually at reduced loan to value. Many more are available once a default is over a year old, and after two to three years most lenders disregard a settled default.
Do small utility or phone defaults count?
Usually not. Many specialist lenders ignore defaults under £250 to £500, and most ignore utility, mobile phone and broadband defaults whatever their size, because they so often arise from disputed final bills after a house move rather than from real financial difficulty.
Does settling a default remove it from my credit file?
No. A default stays on your file for six years from the default date whether or not you settle it. Settling changes its status to satisfied, which lenders treat more favourably, and can be required for larger or recent defaults.
How many defaults will a secured loan lender allow?
It varies by lender. A common pattern is two or three defaults in the last 24 months, with older ones disregarded. Some lenders use a combined value limit instead. Beyond those limits the choice narrows and the loan to value falls.
Does checking my options affect my credit score?
No. Checking your options will not affect your credit score. Equiclear does not search your credit file, and any check the broker makes at this stage is a soft search, which other lenders cannot see. A full application to a lender later is recorded in the usual way, which is why matching you to the right lender first matters.