Fixed-rate secured loans can provide additional peace of mind by guaranteeing the amount of interest you have to pay. 

Uncover everything you need to know about a secured personal loan here – and keep reading as we dissect fixed-rate secured loans. 

What are secured loans?

Loans are sums of money given to individuals who must then repay the capital loan amount plus interest over an agreed loan term made up of monthly repayments. A secured loan follows this principle but uses an asset as collateral in the unforeseen event that the loan cannot be repaid, which may be due to being made redundant, sickness or long-term injury. 

There are different types of secured loans which use different assets as collateral. Some use property and home equity, whereas others may use vehicles or something niche. These loans come with greater risk, especially when you secured debts against your home. If you don’t keep up repayments your home may be repossessed and sold. 

Only ever compare loans that are provided by lenders that are authorised and regulated by the Financial Conduct Authority (FCA) and think carefully before securing any debt against an asset. You should be able to find free local advice and support before getting a secured loan and consider alternative options. 

What is a fixed-rate secured loan?

A fixed-rate secured loan is a loan that uses an asset as collateral – as described above – and has a fixed rate of interest on payments that cannot change. We discuss fixed rate secured loans in more detail later in this guide. 

How do secured loans work?

Secured loans provide you with credit that can often be spent on anything the borrower wishes. However, some secured loans may only provide credit for specific purposes, such as debt consolidation or home improvement secured loans. Securing a loan reduces your lending risk and you may be able to borrow more. 

When you apply for a secured loan you list an asset as collateral and this asset can be repossessed if you do not make monthly repayments as agreed. If this occurs, the asset is taken and sold to raise money. The money from the sale of the asset is then used to pay off the debt, including interest and any late charges that may have accumulated. 

The opposite of this is deciding to repay all of the secured loan early, which may be allowed but can come with early repayment charges. If you pay off a secured loan as originally agreed with no hiccups then your asset can never be repossessed. 

How are secured loans different from unsecured loans?

Opposite to a secured loan, unsecured loans do not use an asset as collateral within the credit agreement. If you default on an unsecured loan the lender does not have a right to repossess your asset and sell it to recover the debt. 

This is the main difference between a secured and unsecured loan. But there are other differences as a consequence. 

Unsecured loans make it harder for the lender to recover any arrears. Consequently, unsecured loan lenders cap their maximum loan amounts at a lower value and may charge higher interest – but that’s not always the case for someone with an excellent credit score. 

If you don’t keep up monthly repayments on an unsecured loan, the lender can still seize some of your valuable assets or take money from a property sale. The way of going about this involves legal action, which takes more time and can be expensive. Yet, many unsecured loan providers still take this action. So you should always aim to keep up repayments on any credit agreement and repay the loan in full. 

What to consider when looking at secured loans?

When you start searching for loans secured by an asset, you will need to consider many things, namely:

  1. How much you can borrow – is it enough?
  2. What asset you need to use as collateral – do you have it? Are you willing to use it as security?
  3. What is the representative example rate – how does it compare? What is the maximum rate? Is the rate fixed or variable?
  4. How long can you have to repay – is it long or short enough?
  5. The additional cost of the loan – are there other loan fees, appraisal fees or closing costs to consider?
  6. Can you repay early – if so, how much is the early repayment charge? 

If this sounds overwhelming, there are ways to outsource the process to professionals and advisors. We explain who these people are later in this post. 

What is the interest rate on a secured loan?

The interest rate offered through a secured loan will be based on your personal circumstances, including your income and how you perform in the lender’s affordability check. And it will be based on your credit score. The better your finances and the lower your credit score, the less of a lending risk you will be perceived as, and consequently, the lower rate you’ll be offered. 

You should also compare secured loans extensively as some lenders can provide lower rates than others. Although there is no fixed interest rate between lenders, the best interest rates are between 2-10%. 

Do you get better rates on secured loans?

Do you get a lower interest rate on a secured loan or an unsecured loan? In general, a loan secured by an asset provides lower interest rates. The fact it is secured reduces your lending risk because it makes it smoother for the lender to recover the debt through repossession of your listed asset. 

However, this might not always be the case. The amount you wish to borrow, your credit score and financial circumstances also contribute to perceived lending risk. It is still possible to get a low-interest rate through an unsecured loan – comparative to secured loans – if you have an excellent credit score with good finances. 

Are secured loans fixed or variable?

You can get a secured loan offered with either a fixed interest rate or a variable interest rate. Some secured loans are more likely to have one or the other.

Fixed-rate interest is when the loan provider agrees to charge you a rate of interest that doesn’t change for the entirety of your monthly repayments, or a fixed interest rate for a specific duration of time within the overall repayment term, and then switches to the lender’s standard variable rate. 

Variable interest means the interest you pay within your monthly repayment can change at any time. Most variable rates are made up of a fixed rate percentage and then a variable rate added on top. The fixed-rate remains the same and the variable rate changed, meaning the total interest rate changes too. Variable rates are decided by the lender but are usually influenced by the economy or even the Bank of England base rate. 

What is the advantage of a fixed rate secured loan?

The advantage of choosing a fixed-rate secured loan over a variable-rate loan is that you know exactly what your monthly repayments will be for a set period. This makes budgeting for your loan repayments easier and straightforward. 

Choosing a fixed rate can also help you avoid any inflation in interest rates that could be caused by a rise in the Bank of England’s base rate, as an economic response to get people to stop spending and borrowing but to start saving more. 

On the other hand, a fixed-rate secured loan could end up more expensive than variable-rate secured loans if the Bank of England base rate decreases during your repayment period. 

What is an example of a fixed rate secured debt?

There are many examples of fixed-rate secured loans, such as some homeowner loans (home enquiry loans), car loans, generic secured personal loans and even some mortgages come with an initial fixed-rate period before transitioning to a variable rate mortgage. 

What is an example of a variable rate secured loan?

You can find a secured loan with a variable interest rate, including some generic loans, car loans, home equity lines of credit (HELOC) and most mortgages that do not come with the immediate fixed-rate period. 

How is the fixed-rate decided?

The fixed rates offered by a lender are decided by finance and business analysts within the company. These professionals will decide on the lowest and highest fixed rates they are willing to offer, and the fixed rate you get will be between these figures, determined by your personal finances and credit score. 

A wide range of metrics will decide how much of a lending risk you are – or aren’t. This includes your income, existing debts, credit score, how much you want to borrow, desired loan repayment term and others. 

It is an accumulation of this information that the lender uses to decide what fixed rate they are willing to offer you. Two people applying to the same lender could be offered different fixed rate secured loans. 

How much can I borrow with a fixed-rate secured loan?

Secured loans allow you to borrow more than unsecured loans on average. Whilst unsecured credit usually goes up to £25,000, secured credit goes well beyond this. 

If you’re using your home or home equity to secure the loan, the amount of money you could borrow could more than quadruple this amount for some people. 

The exact amount depends on personal circumstances, but you should never overborrow. 

Can I get a fixed-rate secured loan with a poor credit score?

It is still possible to get a fixed or variable rate secured loan with a poor credit history. In fact, any loans secured with an asset may reduce your lending risk and increase your chances of being approved compared to unsecured credit. 

Some loan providers even advertise secured loans for people with bad credit. You are likely to pay a higher interest rate. 

Where can I find fixed rate secured loans?

Fixed-rate secured loans are widely available from an array of lenders. Most of these are banks, online loan companies, mortgage providers and building societies. Some loans may be easier to find with a fixed rate compared to others.

It’s essential that you only try to get a secured loan from a loan provider that is authorised and regulated by the Financial Conduct Authority. 

Is it easy to compare fixed rate secured loans?

Comparing fixed rate secured loans is easier than comparing secured loans with variable rates. The reason for this is because you know the interest rate won’t change and will not be subject to unforeseen changes and estimations. 

To compare fixed rate secured loans, you should compare the representative example APRs advertised by each lender while also taking into account the loan amounts available and any other applicable fees. This has been made even easier with the rollout of secured loan calculators, which are found on most lenders’ websites. 

But keep in mind that the representative example is only representative of 51% of successful applications. If you have a poor credit history, you’re likely to be offered a higher rate or even denied the secured loan. 

Who can help me find and compare secured loans?

Comparing fixed rate secured loans can be daunting, especially if you have never taken out a loan before. You can get help searching the market and comparing loans, which could save you time or even help secure more favourable loan repayments. 

Some of the ways to get help looking, searching and even applying for a secured loan are:

  1. Using comparison websites
  2. Using a credit broker
  3. Using money advice groups or local equivalents
  4. Using a professional finance advisor

Most of the above will come at a cost and there is no guarantee that they will get your application approved or find the best deal. 

I still have a fixed-rate secured loan question…

If we haven’t answered your secured loan question above, there is a good chance we have answered it in one of our new secured loan guides. Type your query into our website search bar and see what comes up. We may have written a whole guide just on your question!

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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