What is a Secured Loan?

A secured loan will provide you with a lump sum of cash to use for things such as home improvements, debt consolidation or a new car – it’s yours to use as you want to.

Secured loans are also often known as homeowner loans. They can be cheaper than unsecured loans because they’re less risky for lenders.

Why choose a secured loan?

Rates can be low

Interest rates can be relatively low and often cheaper than other borrowing methods

Longer repayment terms

Secured loans can last for ten years or longer. A long repayment period allows you to spread out the monthly payments.

Your credit history considered

If your credit rating is less than perfect, you may still be able to borrow because a secured loan is backed by an asset.

Can help improve your credit rating

Can help you improve credit scores by maintaining regular payments.

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Types of Secured Loan

Short term fixed rate

With a short term fixed rate secured loan, you pay a fixed amount every month throughout the term that the rate is fixed. Typically short term loans are usually between one and five years. After the loan term has finished, your repayments will then revert to the lender’s standard variable rate, which means that that your payments may vary and could go up or down.

Fixed for term

With a fixed term secured loan, you pay a fixed amount every month throughout the term of the agreement, giving you the peace of mind that your repayments will not change, allowing you to budget and manage your outgoings.

Variable rate

With a variable rate secured loan, the interest you pay may vary depending on the Bank of England base rate or market forces. Your monthly repayments and the total amount you repay over the term of the agreement could increase or decrease. If interest rates go up, you may end up having to repay a lot more than you originally budgeted for.

Frequently asked questions

If you fail to make the repayments, your home, or any other asset you’ve used as collateral, can be at risk of repossession.

What are the risks of a secured loan?

If you miss repayments you could lose the asset you secured the loan against. Our advisers will explain the risks of missing payments, as some lenders can act quickly if you miss payments.

Your repayments could increase if your loan has a variable rate. Most secured loans have variable rates, which means that if the Bank of England raises the base rate, your interest rate will usually increase too.

You should carefully consider your budget and your ability to pay off the loan before you borrow any money. Remember, if you default on the loan or make late payments it can also adversely affect your credit score.

What can I use the secured loan for?

Secured loan can be used for a variety of reasons. Most commonly the money is used for home improvements or renovations, such as adding an extension or upgrading a kitchen or bathroom.

You can also use the loan to purchase a new car or help to consolidate debts and other borrowings. You may need to tell the lender what you intend to use the money for as part of the application.

Can I get a secured loan if I have a poor credit history?

A secured loan is secured against an asset such as your home, which means you are more likely of getting approved for the loan, should you have poor credit history. Lenders are more relaxed about lending, as they have the security that the loan is being secured against property or another asset.

Having a secured loan and making regular payments can also help repair or improve your credit score over time.

What is the difference between a secured and unsecured loan?

A secured loan is where the loan is secured against an asset that you own, such as your home. Securing the loan against an asset represents less risk to the lender and can often be easier to obtain than an unsecured loan.

An unsecured loan – often known as a personal loan – can represent more risk for the lender, because they might not get their money back if you miss or are unable to make your repayments. Because the loan is unsecure, it usually will have a lower maximum value and charge a higher interest rate.

How much can I borrow?

With Secured Loans, the amount you can borrow will be limited by what you can afford and the amount of equity you have available in the asset you secure the loan against.

Many people choose secured lending over unsecured lending because of the potential amounts you can borrow, however what you are likely to be accepted for may depend on a number of factors.

As with your mortgage, the lender will assess your personal circumstances, your affordability, your credit rating, as well as how much equity you have in your property, before agreeing to an exact sum they will loan you.

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