How to Get out Of a Secured Loan – Step-by-Step guide

This guide explains options when you want to repay or are struggling with a secured loan. The right route depends on the agreement, affordability and your circumstances.

We know how worrying it can be if you’re in debt or concerned about the potential consequences of a secured loan. So, we’ve put together this step-by-step guide to help you on your journey. We’ll cover:

• What secured loans are and how they work.
• Whether secured loans are a risk.
• The true cost of a bad secured loan.
• What happens if you can’t pay your secured loan.
• Different ways to get out of a secured loan.

Seek free, independent debt advice promptly if repayments are becoming difficult.

Let’s dive in.

How do secured loans work?

Secured loans work in a similar way to an unsecured loan. You will receive a lump sum amount and repay this loan through monthly payments that include a rate of interest. These payments will continue until you have paid back all of the loan, which may take a few months to over a decade, depending on the loan amount and personal finances. 

You might be allowed to pay the loan off early, but you could incur an early repayment charge by doing so. 

It’s important that before taking out any loan, you thoroughly understand the loan agreement. This includes understanding all of the terms and conditions, payment plans, interest rates, any additional fees, and potential penalties.

How to get out of a secured loan

So, how can you get out of a secured loan? There are a couple of options you may want to consider. The best option will depend on personal circumstances and your finances.

1. Discuss affordable payments with the lender. A change may help, but extending the term can increase the total cost and does not automatically release the security.
2. Selling the secured asset may repay the debt, subject to the lender’s settlement requirements and charge priority. Obtain settlement figures and allow for sale costs and any shortfall.
3. Do not take new borrowing to cover priority arrears without advice. Consolidation can increase total costs or put more security at risk, even when monthly payments fall. See related guidance.

This forum user on MoneySavingExpert is looking for advice on how they can get out of their secured loan.

What happens if you default on a secured loan?

A missed payment creates arrears. A credit-file default, a contractual default and any statutory default notice are different concepts; they do not automatically arise after one missed payment and reminders. Missed payments can still affect your credit record. See related guidance, related guidance.

What happens if I can’t pay my secured loan?

The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process. Sale proceeds may not cover all debt and costs, leaving a shortfall.

What to do when you can’t pay your secured loan?

Contacting the lender early can help you explore forbearance, but it does not guarantee repossession will be avoided. Get free debt advice and respond promptly to formal notices.

This might mean changing interest rates or lowering your payments but extending the repayment term. This could make repayments affordable and mean you pay back more in total, which benefits both you and the lender. You should also seek debt advice from a UK debt charity. 

Can a secured loan be written off?

A lender may agree a settlement or write-off, but the position depends on the circumstances. In England and Wales, a DRO does not remove a secured creditor’s rights; homeowners are not eligible. A remaining unsecured shortfall after sale or repossession can be treated differently, so obtain specialist advice.

Can I include my secured loan in a debt management plan?

A DMP normally deals with non-priority unsecured debts. Continue to prioritise mortgage and secured-loan payments and take advice about tax, student-loan or other excluded debts. A DMP does not bind creditors or prevent enforcement automatically. See related guidance.

Can I move if I have a secured loan?

If you have a secured loan using your property or home equity as collateral in the agreement, you might have to repay the whole loan before moving home. However, some lenders will allow you to switch the asset used as security from your old house to your new home or new amount of home equity (providing it is enough). 

Of course, you will need to be buying the new home rather than renting it from someone else. 

Are secured loans a risk?

Secured loans are considered a risk because your asset used as security is at risk of repossession if you do not make all your repayments. To mitigate this risk, you should try to borrow as little as needed. This may involve saving more over many months or years, so you only need to take out a lesser loan amount.

Moreover, seeking a secured loan with attractive repayment terms can reduce the risk of the loan becoming unaffordable even further. 

On the other side of the argument, these loans can provide more credit and sometimes a lower interest rate than unsecured loans. 

Alternative financing options

If a secured loan doesn’t seem right for you and your situation, you could consider other types of borrowing, such as credit cards, overdrafts, Peer-to-Peer lending and Credit Unions. But, in my experience, all of these options also come with risks, so it’s important to do your research.