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Secured loans

Secured loans

We all have times where we need some financial support. If you can’t get a high enough balance on a credit card, and a personal loan isn’t an option, then a secured loan might be useful.

Anelda Knoesen
From the Money team
minute read
posted 22 NOVEMBER 2019

What are secured loans?

Secured loans are secured against an asset. This could be your car or something else you own, but it’s often the equity in your home. These types of secured loans are also often known as homeowner loans.  They can be cheaper than unsecured loans because they’re less risky for lenders. But if you fail to make the repayments, your home, or any other asset you’ve used as collateral, can be at risk of repossession.
If you’re looking to use your home to raise extra funds, remortgaging can also be an option.

How much can I borrow with a secured loan?

With a secured loan you can generally borrow anything from £5,000 up to typically £100,000. Some specialist lenders may offer higher amounts. You can use Compare the Market to compare secured loans up to £100,000.  
If you need funds for a major expense – for example a new kitchen or bathroom – and you’re sure you can make the repayments, this can be an effective way to raise finance. A secured loan could also be an option if you need to consolidate debts from credit cards, overdrafts or unsecured loans with higher interest rates.  
Find out more about debt consolidation loans

Why should I choose a secured loan?

Taking out a secured loan could mean you:

  • Get a relatively low rate of interest
  • Are able to borrow a larger sum
  • May be able to borrow without a high credit rating
  • Get a longer repayment term than you would with a personal loan – although this will mean you pay more interest overall

As with all loans, the exact rates you receive will depend on your personal circumstances, so be sure to look around for the best secured loan for you. You may be able to borrow without a good credit rating, but you’ll probably be offered a higher interest rate.

What are the risks of secured loans?

  • If you miss repayments you could lose your home. Make sure you understand the risks, as some lenders can act quickly if you miss payments. 
  • 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 consider if you would still be able to afford the loan if this happens. Unsecured loans are usually fixed rate loans  that give you the security of always knowing what you’ll pay each month. Arrangement fees and other associated charges can be high.

If you decide to take out a secured loan, look at the total amount repayable, as well as the headline APRC. The APRC is the rate of interest taking into account all fees and costs and any introductory rates on a mortgage or loan and can be helpful when comparing the cost of loans. Also, make sure you have read the fine print and understand the missed payment terms in case the worst happens.

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