Before you enquire: MoneyNerd introduces enquiries to Loans Warehouse, a credit broker, not a lender. MoneyNerd does not provide mortgage advice and may receive a referral fee. Fees and charges may apply to the loan and broker service. Your home may be repossessed if you do not keep up repayments on a loan secured against it.
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Compare the APRC, fees, monthly repayments and total amount repayable over the full term. A lower monthly payment can mean paying more overall if the loan runs for longer. Rates and eligibility depend on your circumstances and the lender.
What is a secured loan?
A secured loan is a type of borrowing where you must list an asset as security within the loan agreement. The most common asset used as security within the agreement is property, including residential and investment properties.
To be able to use a property as collateral, you’ll need to have sufficient home equity in the property.
Your home may be repossessed if you do not keep up repayments on a loan secured against it. Consider advice from a suitably qualified mortgage adviser and compare alternatives before applying.
What’s the difference between a secured and an unsecured loan?
A secured loan requires an asset as collateral in the credit agreement, whereas an unsecured loan doesn’t require any assets to be used as security. Unsecured loans create more risk for lenders, which leads to some other notable differences.
How does a secured loan work?
A secured loan usually works by providing the borrower with a lump sum loan, often subject to fixed interest rates. However, some secured loans may use a drawdown facility and a variable rate of interest.
The loan is then repaid through monthly payments lasting a fixed duration. As long as all repayments are made over the repayment period, the full loan and interest will be paid off.
Secured loans are best understood with a simple example.
For example, you might want to borrow £15,000 for home improvements and have £100,000 of equity in your property. Whether you can borrow that amount depends on the lender’s affordability assessment, your credit history and the property, as well as its equity.
This money will then be repaid through monthly instalments for many months, or for significant secured loans, for many years. The monthly repayment will consist of a repayment of some of the principal loan amount and the interest you agreed to.
Some secured loans are cheaper than others.
What happens if you default on a secured loan?
A defaulted secured loan is a secured loan that you have failed to repay as agreed. The lender will then take further action to recover the money owed, and any fees.
If you fall behind with repayments, contact your lender promptly. A lender may take legal action to repossess a property securing the loan. The process and protections depend on where you live.
Where a second-charge loan sits behind an existing first mortgage, the first lender generally has priority over the sale proceeds. Any remaining proceeds can then go towards the second-charge debt.
If the sale proceeds do not cover everything owed, the lender may pursue you for the shortfall. Negative equity does not remove your repayment obligation or guarantee that your home is protected from repossession.
If you’re struggling with repayments, contact your lender and get free debt advice promptly. Use MoneyHelper’s debt advice locator to find support.
Enquire about a secured loan through Loans Warehouse, a credit broker, not a lender. Approval and terms depend on checks. Compare fees, interest and the total amount repayable before applying. MoneyNerd may receive a referral fee.
Your home may be repossessed if you do not keep up repayments on a loan secured against it.
What loans are secured?
Secured loans is an umbrella term to cover a variety of different loans that use an asset as security in the agreement.
Property-backed borrowing includes homeowner loans and second-charge mortgages. Terms such as home equity loan and home improvement loan can describe overlapping products; a home improvement loan can also be unsecured.
What are home equity loans?
A home equity loan lets a homeowner borrow against equity in their property. Rates may be fixed or variable. A HELOC is a different, flexible credit arrangement; it should not be assumed to work like a standard UK homeowner loan.
Read our dedicated home equity loan page for more information on this type of secured loan!
What are home improvement loans?
A home improvement loan is borrowing used to fund work on a property. It may be secured against the home or unsecured, depending on the product. Check the agreement and whether your home is at risk.
What are homeowner loans?
Homeowner loans are another type of secured loan that uses property as collateral within the agreement, hence their name. A homeowner loan is similar to a home equity loan but there can be some differences. They’re best understood by visiting our homeowner loan page.
What are second-charge mortgages?
A second-charge mortgage is an additional loan secured against a property that already has a first mortgage. The first mortgage normally takes priority if the property is sold. Read our second-charge mortgage guide for more information.
Borrowing secured behind both a first and second charge may be described as a third-charge loan. Availability and terms depend on the lender and existing charges.
Enquire about a secured loan through Loans Warehouse, a credit broker, not a lender. Approval and terms depend on checks. Compare fees, interest and the total amount repayable before applying. MoneyNerd may receive a referral fee.
Your home may be repossessed if you do not keep up repayments on a loan secured against it.
What is a HELOC?
HELOC stands for Home Equity Line of Credit. It generally describes a facility that allows borrowing up to an agreed limit against home equity. Product terms and availability vary by country and lender, so check the actual UK product offered rather than relying on this label.
How much can you borrow with a secured loan?
Your secured loan borrowing power will depend on:
- The lender’s product
- The value of the asset being used as collateral
- Your income and existing debts (debt-to-income ratio)
- A credit check
You can use a secured loan calculator to give you an idea of how much you can borrow through a secured loan, but take the results with a pinch of salt. They may not reflect what’s offered in a real application.
Pros and cons of secured loans
There are many pros and cons of taking out a secured debt. Below we have listed some of the most common benefits and drawbacks you need to be aware of.
What are the main advantages of a secured loan?
The main advantages of using a secured loan are:
- You can usually take out a bigger loan compared to unsecured lending
- Rates may be lower than some unsecured borrowing, but fees and a longer term can increase the total cost
- There are a variety of secured loan lenders to choose from
What are the main disadvantages of a secured loan?
The main disadvantages of using a secured loan are:
- Your home or other asset may be repossessed if you do not keep up repayments.
- Fees and early repayment charges may apply. A longer term can increase the total interest paid.
Are there any age restrictions for secured loans?
Secured loans are available to people who are at least 18 years old. It can be more difficult to get a secured loan in older age. We’ve discussed this in a dedicated post about secured loans for pensioners.
Will a secured loan improve my credit score?
A secured loan does not guarantee an improvement in your credit score.
Keeping up with repayments can support your credit history, but applying for and taking on new credit can also affect your score. Missed payments can damage it. Do not secure debt against your home simply to try to improve a credit score.
Does a secured loan affect my ability to remortgage?
A secured loan that is secured with your property can affect your ability to remortgage in some cases. But this is a complex topic which requires more information. You can get this from a credit broker or by reading our blog post on remortgaging with a home equity loan.
How can I get a secured loan?
You can get secured loans from banks, mortgage companies and online secured loan lenders.
What is the secured loan approval process?
The secured loan application process includes a number of possible steps, including:
- Researching secured loans and your options
- Making your application
- Uploading or sending supporting documents for your application
- Potential property appraisal
- Application decision
How long does it take to get a secured loan?
Completion times vary. A secured loan can take several weeks, depending on the lender, valuation, legal work and the information needed from you.
Fast secured loans occur when the lender doesn’t need to carry out an in-person property appraisal or when they can carry out a property appraisal quickly with no other complications.
After a secured loan application is approved, funds are released only once the lender’s remaining conditions and any legal requirements are met. Ask the broker or lender for a realistic timescale.
You might hear about secured loans with an instant decision. But these lenders are usually providing a decision on the likelihood of you getting approved rather than on a real application.
What might prevent me from being able to get a secured loan?
Adverse credit history can stop you from getting approved for a secured loan. If you’ve previously used an IVA or were issued with a CCJ, it can be difficult to get approval.
Self-employed people could experience a different stumbling block when trying to get a secured loan. If the self-employed worker has only recently set up their business, they might not have enough evidence of accounts to prove their income.
But there are secured loan lenders for self-employed people. These lenders understand the issues facing self-employed workers and can help.
Is a secured loan hard to get?
Approval depends on the lender’s criteria and your circumstances.
Having property as security does not guarantee approval. Lenders assess affordability, income, existing commitments, credit history and the property. Compare suitable options rather than assuming a secured loan is easier to obtain.
Can I get a secured loan if I have bad credit?
It’s still possible to get a secured loan if you have an unsatisfactory credit history.
You might still be able to use standard lenders, or you could improve your chances by looking for secured loans for people with bad credit.
The interest rate you’re asked to pay on these loans could be higher, which should be evident when you use these lender’s bad credit secured loan calculators.
Be cautious about promises of guaranteed approval or borrowing without checks. Check the lender or broker on the FCA’s firm checker and understand the checks, costs and security required before proceeding.
Who are the best companies to take out a secured loan with?
When you plan to take out a secured loan, you can go directly to the lender or use a secured loan broker.
Whichever option you choose, make sure you do a robust comparison of secured loans to find the best and most suitable and best secured loans for you.
Enquire about a secured loan through Loans Warehouse, a credit broker, not a lender. Approval and terms depend on checks. Compare fees, interest and the total amount repayable before applying. MoneyNerd may receive a referral fee.
Your home may be repossessed if you do not keep up repayments on a loan secured against it.
