Secured Loans – 2022 Comparison
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Once you’ve decided that a secured loan is right for you, the next task is to compare secured loans online. We recap on what a secured loan is before discussing the different places to look and compare loans.
Read on for additional tips and hints to help you find the most beneficial loan deal.
What are secured loans?
Loans can be either secured or unsecured. A secured loan is when the lender requests that the borrower uses one of their assets as collateral in the loan agreement, meaning they can repossess and sell this asset if you fail to keep up repayments. An unsecured loan does not require any asset to be used as security in the agreement
The difference between a secured and unsecured loan is the need for an asset to be used as collateral, but as a consequence, secured loans can be available for more money and possibly with a competitive interest rate.
Only consider any personal loan that comes from a lender that is authorised and regulated by the Financial Conduct Authority (FCA) and on the Financial Services Register. Not doing so could result in taking out loans from scam companies and criminal organisations.
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How do secured loans work?
Secured loans refer to a wide variety of loans, but most of them will give the borrower a lump sum amount. This lump sum needs to be repaid with interest and is done so over a fixed period, usually of many years. During this period, the borrower must make full and timely monthly repayments. These monthly repayments repay part of the loan amount and a rate of interest on that amount. Payments may cover other secured loan costs.
You are probably able to pay back the secured loan early, but to do so, you might also have to pay early repayment fees. If you cannot keep up with monthly repayments to repay the loan, the lender can record defaults on your credit rating. This can progress into repossession of your asset to recover all arrears and the remaining loan balance, through the sale of said asset.
As most secured loans are secured against your home or home equity, your home may be repossessed and sold if you don’t make the agreed monthly payments. You should think carefully before securing a loan with an asset, especially if it needs to be secured against your home or the equity in your home.
What are some examples of secured loans?
To give you an idea of the variety of secured loans available, here are some examples:
- Generic secured loans
- Second charge mortgages, also known as homeowner loans
- Debt consolidation loans (also available as unsecured credit)
- Home improvement loans (also available as unsecured credit)
- Guarantor loans
Remember to only consider the above when advertised by an organisation that is authorised and regulated by the Financial Conduct Authority.
How much do secured loans cost?
If you pay off a secured loan as agreed, you will only need to pay back the interest rate and possibly closing costs on some secured loans. Interest can range from 2-25+% and closing costs are usually between 2-5% of the loan amount.
Where is the best place to get a secured loan?
There is no single best place to get a secured loan because lenders frequently change the type of secured loan deals on offer. To find the best deals, you must compare secured loans online. We’ll explain how you can compare secured personal loans effectively later in this guide.
Moreover, the secured loan deal will be determined by your personal circumstances, including income and credit score. Thus, one person may find the best secured loan for them with lender A, and another person may find the best deal for them at lender Z.
Can you get a fixed-rate secured loan?
Secured loans may be offered with either a fixed interest rate or variable interest rate.
Fixed interest rates remain the same throughout the full loan term, or throughout an initial period of the loan repayment term before transitioning into a variable rate. The benefit of a fixed interest rate is you know the exact cost of the loan and can easily budget for repayments.
Variable interest rates are when the amount of interest payable each month can change, based on how the economy is performing and the Bank of England base rate. Loan repayments with a variable rate can be harder to budget for because the amount owed changes.
Some loans with a secured asset are more likely to use a variable rate, such as home equity loans or home equity lines of credit (HELOC). The reason for this is that these loans are often for larger credit, and therefore, usually have longer repayment periods. The lender will protect itself by offering a variable rate that can change over a fixed rate. If a fixed rate is offered, it’s usually for a limited period before switching to the lender’s standard variable rate.
Which banks offer secured loans (UK)?
Most if not all UK banks offer some type of secured loan, such as NatWest, Santander, Lloyds and many others. You can usually apply for a secured loan from a bank online. However, some banks may not advertise secured loans and you may need to discuss your options in a branch. You might need to make an appointment in advance.
Where else can I get a secured loan?
Along with UK banks, secured loans are also available from online loan lenders. Be careful if you take out a secured loan from an online lender, as they may be acting as a broker, not a lender.
Some online loan websites give the impression that they are offering loans secured directly, when in fact they are a credit broker. These sites scan partnered loan providers to compare options and find you a loan. This may sound tempting and an easy way to compare secured loans “hands-free” but you may not get the best deal and might have to pay a fee or commission to the broker.
If you decide to use a direct lender or broker, remember that it is crucial they are governed by the Financial Conduct Authority.
How do I compare secured loans?
Getting a secured loan starts by comparing your options. Unfortunately, this isn’t as straightforward as you might think – but it’s by no means impossible.
Each lender advertises their loan with a representative example rate. This is the rate that the average applicant is likely to receive (51% of people), but around 49% of people will be offered a different rate, often higher. Using the representative rate is the best and fairest way of advertising a loan when interest rates depend on individual circumstances.
Potential applicants can use the lender’s online loan calculator to enter how much they want to borrow and how long they want to repay. The calculator crunches the numbers to produce projected monthly payments. But these projections are based on the representative rate only.
You can consider them fairly accurate if you have a decent credit score, but if you have an exceptionally excellent score or bad credit, they may not be very accurate. Alternatively, you may be able to get a quote from some lenders for more accurate projections. These quotes usually involve a soft credit search only.
Should I compare secured loans with a comparison website?
Loan comparison websites are third-party websites that can quickly and easily give you an overview of secured loans on the UK market at the time of your search. They can be extremely useful in identifying different options and can save you lots of time. It may be worth using these loan comparison websites, even if it is just to do a preliminary search before you do independent research.
Who can help me compare secured loans?
To get help to compare loans, consider using a financial adviser or loan broker. These People and companies can search and compare all types of secured and homeowner loans on your behalf, equipped with expert knowledge. However, they do come at a cost and they may or may not save you money overall.
What credit score do I need to get a secured loan?
There is no minimum credit score you must have to get a secured loan. Applications for secured loans are judged on the entirety of the application, including income and existing debts to conduct an affordability check and a credit score assessment.
Each lender can apply its own test to either approve or deny the loan, and therefore there is no absolute credit score you must have that applies to all lenders.
Can I get a secured loan with a poor credit history?
It is still possible to be approved for a secured loan if you have a bad credit history. You might have to pay a higher interest rate or be limited in the sum of money you can borrow. Some lenders even advertise bad credit secured loans.
It’s considered somewhat easier to get a secured loan if you have unsatisfactory credit because securing debts against your home reduces your lending risk. However, nothing is guaranteed when applying for a secured personal loan.
More help to compare secured loans
For more help to compare secured and unsecured loans and the risks of losing your home, check out the new MoneyNerd guides just published online. Our guides are packed with clear answers and tips, and best of all – they’re 100% free!