60-second summary
A secured loan allows you to borrow money against a valuable asset, typically your home. But the asset could be repossessed if you don’t make the repayments.
Secured loan interest rates can be fixed, short-term fixed or variable.
Advantages of secured loans can include being able to borrow larger amounts, getting lower interest rates, longer loan terms and a higher chance of approval.
Disadvantages include the risk of having your asset repossessed, paying more in interest if you’re borrowing over a longer period, and potential early repayment fees.
To be eligible for a secured loan with a low interest rate you’ll usually need to have equity in your home and a good credit score.
Alternatives to secured loans can include unsecured loans, credit cards, guarantor loans and remortgaging.
What is a secured loan?
A secured loan lets you borrow or ‘secure’ money against a valuable asset that you own, typically your home.
As with other loans, you’ll need to make the monthly repayments on time every month. But with a secured loan, there’s an added risk. If you fail to keep up with the repayments, your home or whatever asset you’ve used as security could be repossessed by the lender.
On the plus side, the security reduces the risk for the lender, so you can usually borrow more than with an unsecured loan and at a lower interest rate.
What interest rate will I get on a secured loan?
When comparing secured loans, there are typically three options:
Fixed rate: the interest rate is fixed for the entire length of the loan
Short-term fixed rate: you pay a fixed rate for an introductory period, then you’re moved to the lender’s standard variable rate
Variable rate: the amount of interest you pay could go up or down, typically (though not always) in line with the Bank of England base rate.
What are the advantages and disadvantages of secured loans?
As with any type of loan, it’s important to weigh up the pros and cons before deciding whether secured lending is the best way to borrow money.
Secured loans pros:
You may be able to borrow a larger amount at a lower interest rate – you can use Compare the Market to compare secured loans up to £150,000
Longer loan term – you can typically spread the length of your loan over a longer period than an unsecured personal loan. This means your monthly repayments may be more affordable
Higher chance of approval – as you’re putting up a valuable asset as security, you present a lower risk to the lender. This means you might have a better chance of being approved, even if you have a bad or no credit history.
Secured loans cons:
Significant risk – your home (or the asset you secured the loan against) could be repossessed if you default on your repayments
You could end up paying more overall – taking a loan out over a longer term usually means you’ll pay more interest in the long run
Early repayment fees – some lenders may charge you if you pay off your loan debt early.
What are the types of secured loans?
If you’re thinking about taking out a secured loan, there are a few different types to consider:
Homeowner loans
A homeowner loan lets you borrow using your property as security. But you risk losing your home if you can’t make the monthly repayments. Our loan comparison service lets you compare homeowner loans up to £150,000.
Mortgages
Used to help you buy a home. You put down a deposit, then borrow a lump sum from a mortgage provider to cover the remaining cost of the property.
A mortgage is secured against your home, which means the mortgage provider can repossess your home if you default on the repayments.
Second mortgages
Also known as a second-charge mortgage, this isn’t an increase on an existing mortgage, it’s a completely new loan. A second mortgage is often used to pay for home improvements.
Bridging loans
A bridging loan is most often used to buy a new house while you wait for the sale of an existing property to complete.
You can’t compare bridging loans with Compare the Market.
Debt consolidation loans
A debt consolidation loan lets you pay off debts from multiple lenders by combining them into one loan from just one provider. These can be secured or unsecured.
Guarantor loans
A guarantor loan is when someone agrees to pay back the loan if you can’t. The guarantor is usually a close family member or friend with a good credit record.
You can’t compare guarantor loans with Compare the Market.
How to get a secured loan
As with any type of loan, you’ll need to make an application to a loan provider.
But before you jump in and formally apply, you can use our loan eligibility checker to see which loans you’re most likely to be accepted for. It’s a soft credit check, which won’t affect your credit score in any way.
If you’re looking to use your home as the asset you secure your loan against, you’ll need to have enough equity to borrow the amount you need. Equity is the part of your home’s value that you own outright (rather than owing on a mortgage).
You can work out how much equity you hold by subtracting the amount remaining on your mortgage from the value of your home.
Typically, the more equity you have, the more you’ll be able to borrow. You won’t usually be able to borrow more than the available equity and some lenders prefer to lend less than that.
Your credit score will also have a bearing on the secured loan rates you’ll be offered. The best secured loans are usually reserved for those with a good credit score. If yours isn’t great, it might be worth trying to build up your credit score before applying.
What are the alternatives to a secured loan?
If you’re not sure whether a secured loan is right for you, there are alternatives you might want to consider:
Unsecured loan – also known as a personal loan, this lets you borrow money without putting up an asset as security
Guarantor loan – guaranteed by a family member or friend, for example, who promises to pay back the debt if you’re unable to
Credit cards – particularly a 0% credit card – could be suitable for short-term borrowing of small amounts
Remortgaging – if you have a mortgage, you could increase it or extend the term to raise funds. But you’ll need to take into account any early repayment charges you might have to pay to make sure remortgaging makes financial sense.
FAQs
Does a secured loan affect remortgaging?
Having a loan secured against your home doesn’t necessarily mean that you can’t remortgage, but it might have an impact on the mortgage provider’s decision. That’s because the provider will look at your income and outgoings (including loan repayments) when deciding whether you can afford to remortgage. You may find that you have fewer borrowing options.
Can I pay off a secured loan early?
It’s usually possible to pay off a secured loan early, but you’re likely to have to pay an early repayment charge (ERC).
Any fees and how they’re calculated should be clearly set out in your loan information and agreement, so you know what to expect if you repay a secured loan early.
Can I get secured loan with bad credit?
Yes, it can be possible to get a secured loan with bad credit. Because you have to put up a valuable asset as security for a secured loan, lenders could be more willing to lend to you.
You might find your options are limited though. And the loan may come with restrictions, such as a maximum term or borrowing limit.
Bear in mind that if you’ve struggled with loans and other debts in the past, you may not want to take on the risk of a secured loan. If you can’t meet your repayments, the loan provider could repossess the asset you secured the loan against.
Can I get a secured loan on a car?
Yes, it’s possible to get a secured loan using your car as collateral. These types of loans are called logbook loans or V5 loans.
However, you must own the car outright and you won’t be able to sell it until the loan is paid back in full. Interest rates are typically higher, so it could be a very expensive way to borrow money.
You can only get a logbook loan in England, Wales or Northern Ireland. They’re not available in Scotland.
You can’t compare logbook loans with Compare the Market.
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