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A secured loan is a loan that you take out using a high value asset as collateral. This can be a vehicle or your home. If you choose to secure the loan against your property, the lender is able to sell it to recoup any monies owed to them, should the loan fall into arrears.
A secured loan is sometimes referred to as a home loan, a homeowner loan or a second-charge mortgage.
A secured loan is usually used when the borrower has bad credit and needs to borrow a large amount of money.
There are a number of very important key differences between a secured and unsecured loan:
There are three main types of secured loan:
Similarly to a fixed-rate mortgage, the interest rate will be fixed for an initial period. Once that period has ended you will revert to the lenders standard variable rate (SVR).
The interest on a variable rate loan is tied to the Bank of England base rate. Repayments are affected by any fluctuations in the base rate.
This is similar to a fixed rate loan, however, the fixed period is usually shorter. Once that period has ended, your rate will be based on the Bank of England base rate, rather than the lenders SVR.
You’re usually able to borrow a larger amount with a secured loan than an unsecured loan. This can range from between £5,000 and £100,000.
The loan amount will depend on equity you have in your home, or the value of other items used as collateral.
Secured loans are often taken out for a high value purchase, such as a car or home improvements. They are also useful for debt consolidation. It’s very important to consider, however, whether you will end up paying more in overall interest, when consolidating smaller debts.
The important things to consider before you apply for a secured loan are:
If you’ve got a poor credit history you are more likely to be accepted for a secured loan than an unsecured loan. This is due to the significantly reduced risk to the lender.
Securing lending, particularly against your home, however, can be incredibly high risk. You should consider the potential consequences of losing your home, very carefully.
Much like mortgages, brokers will have a whole market view of the loans available to you. They can help you not only to determine your likelihood of acceptance, but also find the most suitable rates available to you. They may also offer debt advice.
Using your home as collateral to borrow money is complex and risky and having the support of a qualified broker is strongly advisable.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage / financial advice and work only for firms who are authorised and regulated by the Financial Conduct Authority.
They will offer any advice specific to you and your needs. Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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