Finding cheap secured loans can save you a lot of money over the lifetime of the loan and even help you keep up repayments more easily. In this MoneyNerd guide, we discuss secured loans and look at some cheap secured loans in the UK today.
Taking out a secured loan comes with risks, but you can mitigate those risks by discovering the better deals.
Secured loans in a nutshell
A secured loan may refer to one of many different types of loans that use an asset as collateral in the loan agreement. What does this mean? It means that the lender has a right to repossess and sell the listed asset if the borrower stops making monthly repayments in full and on time as stated in the loan agreement. For example, your home may be repossessed if you secure a loan with a property and stop repaying.
Only consider getting any type of secured loan from a provider that is authorised and regulated by the Financial Conduct Authority.
How do secured loans work?
Secured loans are often provided as a lump sum of money, but there are some that give the individual a draw period where they access the loan in stages over a fixed duration.
Those that provide a lump sum are repaid over an agreed period of monthly repayments, including repayment of the capital loan amount and a rate of interest. You may want to repay the secured loan early, which is usually possible but triggers an early repayment fee.
If a single monthly repayment is missed, the lender will urgently ask you to pay and start sending reminders. Only by missing multiple monthly repayments and ignoring communication from the lender will repossession be realistic. The lender will seize the asset listed as collateral and sell it, sometimes at an auction. The money raised from the sale is used to pay off all arrears, the rest of the loan and any late fees. If any funds are remaining after all expenses are paid, the borrower gets to keep what is remaining.
What is the difference between a secured and an unsecured loan?
The difference between a secured loan and an unsecured loan is that one uses an asset as collateral in the loan agreement and the other does not. Because secured loans require assets to be used as security, secured loans are usually available for larger amounts and at a lower interest rate, however, both of these depend on personal finances and your credit score.
There are many different types of secured and unsecured loans, which may or may not have to be used for specific purposes.
Are secured loans easier to get?
Chasing secured loan arrears is much easier than having to chase arrears accumulated from missing unsecured loan repayments. When the lender wants to recover a secured loan debt, they can repossess your asset. But when the lender wants to recover an unsecured loan debt, they might have to take you to court and request enforcement action with bailiffs.
This makes getting a secured loan somewhat easier than getting approved for an unsecured loan. However, nothing is certain and you can still be denied a secured loan if you have a low credit score or the lender deems the loan unaffordable for you.
Where can I get a secured loan?
Secured loans are advertised widely online. They are typically offered by UK banks, some building societies, supermarkets, the Post Office and online loan providers. Some types of secured loans, such as second charge mortgages, are available through specialist mortgage lenders. Only consider companies that are authorised and regulated by the Financial Conduct Authority (FCA).
Are secured loans cheaper?
Secured loans often have a lower interest rate than unsecured credit, such as credit cards and unsecured loans. By using an asset as collateral, the lender may view you as less of a lending risk and be able to offer a lower interest rate than unsecured credit.
If you take out a secured loan against a property or the equity in your home, you have a better chance of getting a cheaper loan. However, there is also the risk of losing your home if you cannot meet all of your monthly payments.
Are secured loans cheaper than personal loans?
One reason someone may choose to get a secured loan over an unsecured personal loan is that the rate of interest within monthly repayments is generally lower. However, the interest rate you are offered depends on individual circumstances and it might only be lower than the rate you would be offered through an unsecured loan.
Someone with a better credit score than you could get a lower rate using unsecured loans than you get using a secured loan.
What is a cheap secured loan?
A cheap secured loan is simply a secured loan that has a low interest rate.
You should also consider any other fees and charges in the loan to determine if it is still a cheap loan. For example, are the early repayment fees low? And does the loan have cheap closing costs that are due to repay the loan at the end of the repayment term?
Sometimes a secured loan may look cheap because of its low interest rate but it includes other charges that are significantly higher than the rest of the market. When you compare secured loans, make sure to look at more than just interest rates.
What are the interest rates on a cheap secured loan?
The average interest rates on the best secured loans are around 2-10% depending on the loan amount you are borrowing. Thus, cheap secured loans have an interest rate at the lower end of this spectrum. To get approved for one of the cheapest secured loans, you’ll need to have good finances and an excellent credit score.
Cheap secured loans – examples
Below are three examples of cheap secured loans in the UK at the time of writing. They are not necessarily the cheapest secured loan available and are provided as examples only. If you want to find a secured loan with low interest rates, you should complete your own up-to-date research.
- Norton Finance
Norton Finance is a reputable and legal online loan provider offering secured loans from £3,000 to £100,000 to be repaid over 1-30 years. This lenders representative rate starts at 2.99% but changes based on your loan amount.
- Ocean Finance
Ocean Finance offers secured loans from £10,000 to £100,000 to be repaid over a repayment term from 5-25 years, This lenders representative rate begins at 9.6% and also changes based on the specifics of the loan. Ocean Finance is not a direct lender, meaning they source loans from other companies on your behalf.
How do I get a cheap secured loan?
To get a cheap secured loan you need to find the lenders offering the lowest interest rates and low loan costs (if applicable).
But because securing the lowest interest rate relies on your personal finances and credit score, you might need to improve your finances by paying off other debts, and increase your credit score to get one of the cheapest secured loans. If not, you could find the cheapest lenders but then be offered an interest rate that is much higher than the representative example and not so cheap.
What is the minimum loan amount for a secured loan?
You can find secured personal loans with low minimum loan amounts comparable to unsecured loans at around £1,000, but most of them begin at £3,000 or £5,000. There are some types of secured loans that use home equity as collateral – known as homeowner loans – and require at least £10,000 to be taken out. Note, there are some homeowner loans that don’t need to be secured with an asset and therefore let you borrow less than £10,000.
If you are thinking about applying for a homeowner loan, read more about them here!
How to compare secured loans
You can compare secured loans using the representative interest rates advertised by each lender. Note that the representative rate changes based on the amount you want to borrow and is not accurate for everyone. The rate shown is what 51% of applicants received and the cost of the loan you are offered may be much higher, especially if you have a poor credit rating. Make sure to look and compare any other applicable fees included in the loan, such as early repayment charges and closing costs.
You may choose to use a loan calculator to get a clearer picture of forecasted loan repayments based on your needs. But as these calculators use the representative rate only, they are not personalised to you and may not be accurate.
Who can help me find a cheap secured loan?
It can be difficult and stressful to compare secured loans online. You can outsource the job to trained professionals instead, such as a credit broker or financial advisor. Their services cost an initial fee and possibly commission, but using them could still save you time and even money. But nothing is guaranteed and you may make your secured loan cheaper by doing it yourself. Each situation can be different.
Can you get a secured loan with bad credit?
It is possible for some people to get approval for a secured loan with a bad credit history and a low credit score. It will all depend on the severity of your low credit score, but some lenders even advertise to these people through “bad credit secured loans”.
Secured loans for people with bad credit are not cheap secured loans. The interest rates on any bad credit loan are considerably higher because the borrower is considered a greater lending risk.
Are secured loans a bad idea?
Potential secured loan applicants should certainly think carefully before securing a loan with one of their assets because there is a risk that your financial situation will change and the loan will become affordable, which could lead to the asset being repossessed. This is why some people think a secured personal loan is a bad idea. Yet, these loans can provide significant credit at a lower interest rate compared to alternative options. They are not always a bad idea for everyone.
You can always mitigate the risks of a loan secured with an asset by borrowing less by saving more before you apply.
Where can I get more info on cheap secured loans?
Need more help navigating the cheap secured loans landscape? As well as seeking help from finance groups, debt charities and commercial service providers, you’ve always got bags of information here on MoneyNerd. Our secured loan hub is jam-packed with new guides providing valuable information. We’ve answered common questions and listed the pitfalls and best tips to search for a secured loan this year.