Secured loans

We all have times when 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.

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What is a secured loan?

A secured loan, sometimes known as a homeowner loan, is a way of borrowing money against a valuable asset, which acts as collateral. Secured lending means that a valuable asset like your home or car acts as security and can be repossessed if you can’t make your loan repayments.

These types of collateral loans are less risky for lenders, so you can usually borrow a larger sum of money compared to an unsecured loan. Interest rates also tend to be lower because you have more to lose if you default.

Like other loans, you’ll need to make monthly repayments, plus interest that’s calculated as a percentage of what you owe. However, with a secured loan, there’s an added risk. If you fail to keep up with the repayments, your home or other asset you’ve used as collateral could be repossessed.

Types of secured loans

Fixed or variable-rate secured loans are available.

Fixed-rate secured loan – repayments and the interest rate charged are fixed for a set period. At the end of the agreed fixed-rate term, you’ll be charged the lender’s standard variable rate (SVR), which means your repayments could go up or down.
Variable-rate secured loan – your monthly repayments could go up or down according to changes in the Bank of England base rate.
Short-term fixed-rate secured loan – you begin on an introductory fixed rate for an agreed period, usually between one and five years, before moving onto a variable rate.

How does a secured loan work?

The way secured loans work is pretty straightforward. If you’re approved, the money will be paid directly into your bank account. Here’s a quick rundown of how the process works:

Search for a deal that works for you – use our comparison service to search for loans you’re more likely to be accepted for. We do a soft credit search, so it won’t affect your credit score in any way.
Apply for your chosen loan – once you apply, the lender will carry out a more detailed hard credit search. They’ll look at your current financial situation and credit history to see if there’s a risk you won’t pay back the loan.
Receive your money – if your loan is approved, you should receive the money in your bank account, usually within a few days.

Pay back your loan – you’ll make monthly repayments for the loan amount, plus any interest, for the agreed length of the loan (known as the loan term). So long as you make the monthly repayments on time and in full every time, you won’t risk losing your home or other secured asset.

What happens if I default on a secured loan?

If you default on paying your secured loan, the lender has the legal right to take possession of your home or other asset the loan is secured against – provided they follow the correct procedures. This means that they could sell your home or asset to recover the money you owe them.

However, for most lenders this is the last resort. If you’re struggling financially, it’s more likely they’ll agree to an affordable payment plan.

Defaults will usually be recorded on your credit report. This will lower your credit score and make it harder for you to borrow money in the future.

Find out more on how to deal with debt.

What is the difference between a secured and unsecured loan?

Both secured and unsecured loans allow you to borrow a lump sum of money that you pay back, plus interest, over an agreed period of time.

However, there are some secured vs unsecured loan differences to consider:

Secured loans	Unsecured loans
You’ll need an asset like your home as collateral	No need for collateral
Typically used to borrow larger sums of money – up to £100,000	Typically used to borrow smaller amounts of money – up to £25,000
Can offer a longer time to pay back the loan – sometimes up to 35 years	You’ll have less time to pay back the loan – typically up to seven years
You may be able to get a secured loan if you have a poor credit rating	No collateral means you’ll typically need a good credit rating to be approved for a loan

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 if secured lending is the best way to borrow money.

Secured loans pros:

You may be able to borrow a larger amount – some lenders will allow you to borrow up to £100,000.
A longer loan term – you can typically stretch out the length of your loan for a longer period than a personal loan. This means that monthly repayments may be more affordable.
A higher chance of approval – as you’re putting up your home or car as security, you’re considered a lower risk for lenders. This means you might have a better chance of being approved, even if you have a bad or no credit history.

Secured loans cons:

There’s a significant amount of risk involved – you could risk losing your home if you default on repayments.
You could end up paying more overall – spreading your loan out over a longer period means you’ll be paying more interest in the long run.
It may cost you to pay off your loan early – if you manage to pay off your loan debt early, you may be hit with an early repayment charge.

How to get a secured loan

As with any type of loan, you’ll need to make an application to a loan provider.

Before you jump in and formally apply, it’s worth running a comparison to see which loans you might be eligible for. This will entail a soft credit check, which won’t affect your credit score in any way.

To be eligible for a secured loan, you’ll need to have equity in your home. Equity is the portion of your home that you own outright – you can work it out by deducting 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 be able to borrow more than the available equity and some lenders will want 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 better credit ratings. If yours is less than perfect, it might be worth trying to build up your credit score before applying.

How much can I get with a secured loan?

With a secured loan, you can typically borrow anything from £5,000 up to £100,000. Some specialist lenders may offer higher amounts. You can use Compare the Market to compare secured loans up to £100,000.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

Find out if you're eligible for a loan here

How much do secured loans cost?

The cost depends on several factors:

The amount you borrow – simply put, the more you borrow, the more it will cost.
The length of the term – if you’re borrowing over a longer period, your monthly payments may be more affordable but you’ll be paying more in interest.
Rate of interest – this will determine your monthly payments. Normally, you can expect lower interest rates over longer-term loans, but the overall cost would still be higher.
Loan fees – these are the arrangement fees for setting up and agreeing the loan. If you applied through a broker, you’ll also have to pay them a fee, although sometimes this will be paid by the loan provider.

The quickest and easiest way to find out how much a loan could cost you is to use our loan comparison service to compare interest rates, fees and fixed-term periods.

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.

Remortgaging – if you have a mortgage, you could increase or extend it to raise funds. But remember to take into account any penalties and charges you might have to pay, to make sure it makes financial sense.

For smaller amounts, you might want to consider:

An unsecured personal loan – allows you to borrow money without the need to secure the loan against your home or car.
Guarantor loan – a type of unsecured personal loan that’s guaranteed by a family member, for example, who promises to pay back the debt if you’re unable to. This could be a good way of securing a loan if you have a poor credit history.

What our expert says...

“While there’s less risk for lenders with a secured loan, there’s more risk for you. Before taking out a secured loan, it’s important to understand the consequences if you fail to meet your monthly repayments.”

- Alex Hasty, Finance expert

Frequently asked questions

Can I get secured loan with bad credit?

Yes, it may be possible to get a secured loan with bad credit. Secured loans are less influenced by credit score as you’re offering an asset – your car, for example – as collateral in exchange for borrowing the money.

But if you’ve struggled with loans and other debts in the past, you may not want to take the risk of a secured loan. If you can’t meet your repayments, the loan provider could repossess the collateral you secured the loan with.

How is my home valued when I take out a secured loan?

The loan provider will arrange for your home to be valued by a chartered surveyor. You’ll normally have to pay for any valuations, so keep this in mind when considering your overall costs.

Is it easier to get a secured loan?

It might be easier to get a secured loan than an unsecured loan, especially if you have a bad credit record. Some loan providers are more willing to lend you money if you’re putting up a security, such as your home.

However, the actual process can be a little more complicated than an unsecured loan because the asset will need to be valued.

Can I pay off a secured loan early?

It’s possible to pay off a secured loan early, but you’re likely to have to pay an early repayment fee. Some providers are happy to let you overpay up to a set amount every year – typically 10%.

Before you overpay, check with your lender whether an early repayment fee will apply and how much it will be.

Do secured loans help your credit score?

If you take out a secured loan and keep up with your repayments, you could see your credit score improve over time. This is because you’re showing that you can handle credit successfully and are less of a risk to lenders. However, if you can’t keep up with the repayments, your credit score will be affected negatively.

What happens to a secured loan if I move home?

If you move home, you’ll usually be expected to pay off a loan secured on the property. You can do this by:

Paying off the debt using the proceeds from the sale of your home
Paying off your secured loan before putting your house up for sale
Transferring the debt to your new property
Taking out an unsecured loan to pay off your existing secured loan.

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.

Please note, you can’t compare logbook loans with Compare the Market.

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^[1]Correct as of September 2023.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.