What Is the Secured Loan Approval Process?
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable
This easy guide will help you understand what a secured loan is, how it works, and what you need to do to get one.
Every month, over 6,900 people visit us for advice on secured loans, so you’re in the right place to get all the facts.
In this guide, we’ll cover:
- What a secured loan is.
- How a secured loan works.
- The true cost of a bad secured loan.
- How to get approved for a secured loan.
- How long a secured loan takes to complete.
In the UK, early repayment fees for secured loans have more than doubled since the start of the decade, peaking in 2018.1 These changes highlight the importance of being well-informed before making any financial decisions.
Don’t worry; we’re here to help you make the best choice.
How does it work?
The secured loan approval process goes something like this:
- You apply for the loan by entering your personal data, income, property value, etc.
- You have to supply documents and proof to back up the statements you make in the application, such as evidencing ownership of the property or your income.
- The lender finalises the application and may need to complete further checks, including a check of your credit report.
- If approved, the lender deposits the loan amount into your bank account.
There may be variations depending on the lender’s processes.
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Secured Loan Case Study
Check out the table below for a snapshot of how secured loans work, including what lenders and borrowers need to consider.
If you want to learn more about the risks and benefits of secured loans, be sure to read our specialized guide.
| Category | Details |
|---|---|
| Background |
Borrower: John, a homeowner in the UK. Financial Situation: Stable income, owns a home, needs additional funds for home renovation. Loan Requirement: £20,000. |
| Loan Process |
Application: John applies for a secured loan from a bank or a financial institution. Property Valuation: The lender assesses the value of John’s home to determine how much they can lend. Credit Check: The lender conducts a credit check to assess John’s creditworthiness and repayment history. Loan Offer: Based on the valuation and credit check, the lender offers John a loan of £20,000 with a specific interest rate. |
| Loan Terms |
Amount: £20,000. Interest Rate: Variable or fixed, depending on the agreement, say 5%. Repayment Period: 10 years. Monthly Repayment: Depends on the interest rate and term, but let’s assume £212 per month. Total Repayable Amount: £25,440 (£20,000 principal + £5,440 interest). |
| Benefits | Lower interest rates compared to unsecured loans due to collateral. Longer repayment periods. Larger loan amounts can be borrowed. Loan used for home renovation. |
| Risks | John’s home is at risk if he fails to make repayments. Potential for negative equity if the property value decreases. Early repayment charges may apply if the loan is paid off early. |
| Outcome |
Loan Repayment: John successfully repays the loan over the 10-year period. Impact on Credit Score: Positive, as John made regular payments. Property Value: An increase in home value due to renovations and market conditions. |
What happens when you apply for a secured loan?
After you have applied for a secured loan, you’ll need to await the lender’s decision.
If the loan has been secured by home equity – which is highly likely – then the lender may need to confirm your amount of equity.
To do this, they would need to value the property.
Sometimes, this requires the lender to send surveyors out to the property to complete an in-person appraisal.
However, in modern times, many lenders are able to accurately value properties remotely using sophisticated technologies and data.
In a nutshell, you may need to wait until after a property appraisal before the lender reaches out and tells you its decision.
If approved, the lender will deposit the loan to your nominated bank account. Repayments will start immediately, which usually means the following month.
Lender |
APRC |
Monthly payment |
Total amount repayable |
|---|---|---|---|
| United Trust Bank Ltd | 5.99% |
£218.73 |
£26,247.92 |
| Equifinance | 6.59% |
£219.77 |
£26,372.92 |
| Pepper Money | 6.86% |
£220.24 |
£26,429.17 |
| Together | 7.65% |
£221.61 |
£26,593.75 |
| Selina | 7.79% |
£221.86 |
£26,622.92 |
| Spring | 10.05% |
£225.78 |
£27,093.75 |
| Loan Logics | 11.2% |
£227.78 |
£27,333.33 |
| Evolution | 11.28% |
£227.92 |
£27,350.00 |
Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable.
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Is it easier to get approved?
Secured loans are generally considered to be easier to get approved for compared with unsecured loans.
The lender doesn’t face as big of a risk when lending to people with a secured loan.
It knows that it can recover any missed payments and defaulted loans by forcing the sale of the asset used as collateral.
This is why secured loans are also offered for greater amounts than unsecured loans, and, in my experience, they usually have more competitive interest rates.
But it’s important to realise these benefits in conjunction with the risks.
A secured loan puts your asset – usually your home – at risk of foreclosure.
If you fail to make repayments on a secured loan, it will also affect your credit score and, therefore, your ability to borrow in the future.
Secured loans for all purposes
- Stuck paying high interest on credit card debts & loans?
- Looking to fund a home improvement project?
- Dreaming of finally taking the once-in-a-lifetime trip?
Polly
“This was by far possibly one of the nicest experiences I’ve had getting a secured loan.”
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Do I need proof of income?
You’ll need to prove your income as part of the secured loan application process.
Even though the loan is secured with an asset, the lender still needs to make sure the loan is affordable to you, which requires them to ask for proof of your income.
They use your income and any existing debts you have to pay to calculate your debt-to-income ratio. This ratio helps the lender decide whether the loan amount needed will be affordable based on your financial circumstances.
Most people choose to prove their income with recent payslips.
You may need as many as three. Some other people with other sources of income could choose to prove their income with bank statements, letters from their accountant, or HMRC tax returns.
How long does it take to complete?
A secured loan approval process can take anywhere from two to six weeks to be completed.
The reason that a secured loan takes much longer than unsecured lending applications is that more checks are required. The lender may even need to complete a property appraisal (re-valuation).
References
