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.
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. The asset could be your car or something else of value, but it’s often the equity tied up in your home.
As secured loans are less risky for lenders, you can usually borrow a larger sum of money compared to an unsecured loan, and interest rates tend to be lower.
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.
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 important 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|
How much can I borrow 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 Comparethemarket to compare secured loans up to £100,000.
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 – vou 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.
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.
Can I get a secured loan with bad credit?
Yes, it may be possible to get a secured loan with bad credit. That’s because 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.
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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?
Alternatives to consider are:
- 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 can 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
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?
The process of getting a secured loan is a little more complicated than an unsecured loan because your home or the asset used as security needs to be valued.
However, some lenders might be more willing to offer a secured loan to those with a less than perfect credit rating because they have an asset that can be repossessed, then sold to pay off the debt.
Can I pay off a secured loan early?
It’s possible, 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.
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 can sell your home or asset to get back 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.
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.
How should I manage my secure loan?
To avoid potentially losing your home and damaging your credit score, you should make all your repayments on time and in full. The easiest way to do this is by setting up a direct debit – and this is what most lenders will ask you to do.
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?
It’s possible to take out loans secured against your car. But if you fail to pay back your loan, your car can be repossessed.
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 Correct as of March 2023.