I’m thinking about using a secured loan – how much can I borrow?

One of the biggest reasons people choose a secured loan over an unsecured loan is because they generally allow them to borrow more money. If you need credit above and beyond what is on offer through unsecured personal loans, you may want to consider a secured loan instead.

Read on as we unwrap the details about how much you could borrow using a secured loan. 

Secured loans explained

A secured loan is a loan where the borrower uses one of their assets as collateral just in case they cannot keep up with monthly repayments. There are different types of secured loans, but the thing that ties them all together is that an asset is used as security and is stated as such within the credit agreement.

The borrower gets to keep the asset while the loan is in place. It is only repossessed if the borrower cannot meet their monthly repayments. You should think carefully before securing a loan with an asset and only consider options from banks and businesses that are authorised and regulated by the Financial Conduct Authority. 

How does a secured loan work?

Most secured loans give the borrower a lump sum amount, but there are some that will provide the credit over a period similar to how you take money from a credit card, officially called a draw period (e.g. Home Equity Line of Credit). The money you receive can either be spent on any purpose or a specific purpose, depending on the type of secured loan taken out. For example, a homeowner loan can be used on anything you wish, whereas a secured debt consolidation loan must be used to consolidate debts. 

The money is repaid over a fixed period using monthly repayments. Within these monthly repayments, the borrower is repaying some of the principal loan amount and interest on that amount. You might be able to repay the loan early. If you do pay back a secured loan early, you may have to pay an early repayment charge. 

But if you do not repay as agreed and miss multiple monthly repayments, the lender can repossess your asset and sell it to recover the loan arrears and remaining debt. This means your family home may be repossessed if you secure a personal loan against your house. 

What can be used as security?

Secured loans generally use one of three assets as collateral in the loan agreement. The most common is either property or home equity, but some loans will accept a vehicle as security as long as you own the vehicle outright in your name, meaning it is not in the process of being paid off through car finance (which is a type of secured loan in itself). 

Most of the time the loan dictates what type of asset must be used as collateral, such as a home equity loan requiring home equity as security. On other occasions, generic secured loans may let you choose from one of the three assets mentioned above to use as collateral. 

There may be some more niche secured loans that use other assets, such as fine art. But these aren’t available to the general public and may be offered to VIPs and HNWIs only. 

Secured vs unsecured loans

The opposite of a secured loan is an unsecured loan. The difference between a secured loan and unsecured loan is that unsecured lenders do not ask the borrower to use an asset as collateral within the credit agreement. If you do not keep up repayments on an unsecured loan, the lender cannot repossess any asset and sell it to recover the debt – at first!

The unsecured loan provider could take you to court and ask the judge for permission to enforce the debt. One method of debt enforcement is using bailiffs. These enforcement officers can repossess goods and sell them if you don’t work out a way to pay off the debt, and they charge hefty fees that are passed on to you. 

Is it easier to get a secured loan?

Generally speaking, a secured loan is considered slightly easier to get approval for compared to unsecured loans. By securing the loan with an asset, you are making it easier for the lender to recover arrears if needed, and thus, reducing your perceived lending risk. With a reduced lending risk, it is somewhat easier to get a secured loan. 

However, when you apply for a secured loan the lender must complete an affordability assessment and check your credit history. If the loan is deemed unaffordable to you or your credit score is too low, you can be rejected for the loan.

Can I borrow more with a secured loan?

When you use a secured loan, you might be able to borrow more than using an unsecured loan. Most unsecured loans allow you to borrow up to £25,000 with some exceptions. Using an asset as collateral makes it easier for the lender to recover arrears and therefore makes them more likely to provide larger credit. If you want to borrow more than £25,000 at a competitive interest rate, you should take out a loan that is secured. 

But the loan amount available to you will still depend on personal circumstances and your credit history. 

Secured loan – how much can I borrow?

How much you can borrow using a secured loan depends on many factors being considered together:

  1. The type of secured loan you use (more on this to follow)
  2. Your income
  3. Your existing debts
  4. The lender’s loan to value ratio
  5. Your credit rating

Every lender should only agree to a loan that is affordable to you, which they calculate by using your income and existing debt repayments. Your debt repayments should be within a certain proportion of your income, and the lower the better. If you have a high income with little or no existing debts to pay, you may be able to get a bigger loan without exceeding the threshold of what is considered affordable to you. Your credit history is also considered within this process. 

What is the maximum loan amount you can borrow?

Loans secured with assets come in different forms. You could argue that it is a mortgage that allows you to borrow the maximum amount of money. These are considered a type of secured loan and allow you to borrow hundreds of thousands of pounds in some cases. 

But some people put mortgages in a bracket of their own and don’t consider them as a typical secured loan. If we shelve mortgages for a moment, the next type of secured loan that allows the average person to borrow the most money is a homeowner loan, also known as a home equity loan or second charge mortgage

A homeowner loan is a secured loan using your home equity as collateral. Home equity is the value of your home you own without any debt attached. For most people, this is worked out by subtracting the amount you have left to pay on your mortgage from the current market value of your home. So, if you have a £300,000 home with an outstanding mortgage of £150,000, you would have 50%/£150,000 home equity. 

You can’t borrow against all of your home equity for your own safety in case the property value decreases over time. The lender’s loan to value ratio (LTV) will explain the absolute maximum you can borrow against it, which at most is usually 80%-85%. Revisiting the example above, this means someone with £150,000 home equity could get a homeowner loan for £127,500. 

How are monthly repayments calculated?

Your monthly repayments are calculated based on the amount you want to borrow, the interest rate you are offered and the repayment term chosen. The timescale you have to repay will determine how many monthly repayments you will need to make. Online calculators on lender websites make this easier to understand. 

What credit score is needed for a secured loan?

The Financial Conduct Authority does not state exactly how a lender must assess your suitability for a loan, but they do provide guidelines to help ensure responsible lending. Because there is no stringent process that all lenders must follow, they can use their own tests, benchmarks and determinations to either approve or deny the loan. This is why you might be denied by one and approved by another. 

Consequently, when they check your credit history, there is no fixed credit score that will ensure you get approved – or a score that means certain denial. It depends on the lender and the rest of your application, including your income and existing debts. 

Yet, having a good or excellent credit score could mean lower interest to pay. You might want to check your score before applying to make sure there are no erroneous records. 

How many secured loans can I have?

There is no limit on the number of secured loans you can have, but taking out a secured loan when you already have one or more is increasingly difficult. This is because your existing debt to income ratio becomes bigger and the lender might decide that another loan puts too much pressure on your finances. This would be responsible lending. 

If you want to secure more debts against your home, the number of secured loans you can have will be determined by the amount of remaining equity in your home. You can only borrow against so much of your available equity to prevent possible negative equity (when your home decreases in value and you owe more on it than it’s worth). 

On top of this, home equity loans and alike may have a minimum loan amount, which in some circumstances could prevent you from securing other debts against home equity.  

Secured loan – how much can I borrow? (Recap!)

In a nutshell, you can usually borrow more with a secured loan over an unsecured loan. While unsecured loans generally go up to £25,000, secured credit can offer much more. If you get specific types of secured loans, especially when you can secure debts against your home equity, you could borrow in excess of £100,000.

Yet, the amount you can borrow also depends on personal circumstances, not least your income, existing debts and your credit rating. You should only be approved for a loan that is affordable to you, and your credit score might prevent you from taking out as big a loan as you want. 

Remember that a secured loan does put your asset at risk. You should always think carefully before securing a debt with an asset, especially your family home or home equity. 

More secured loan information, FREE!

We’ve just published an array of new articles and guides all about secured loans, answering readers’ most asked secured loan questions. From monthly repayments to interest rates and much more, learn everything you need to know about these loans here at MoneyNerd!

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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