Looking for secured loans advice? Been considering a secured loan? Taking the next step can be daunting, especially when your car or home is put on the line.
In today’s guide, we will walk you through all the trials and tribulations of these types of loans and explain where you can get personalised secured loans advice in the UK.
Let’s get started…
What is a secured loan?
A secured loan could refer to one of many types of loan, but in any case, the loan is secured with an asset. This means one of the borrower’s assets such as a car or property is used as collateral in the credit agreement.
How do secured loans work?
A secured loan provides the borrower with money, usually to be used as they wish but some secured loans require the loan to be used for a specific purpose, such as debt consolidation or home improvements. You then pay the loan back over a fixed period of time consisting of monthly payments. You might be able to pay back early but at a cost.
If you do not keep up repayments as agreed and have multiple defaults, the lender can repossess the asset used as collateral and sell it to get the money they’re owed. Taking out loans secured on your home is a risk and you should think carefully before doing so. Moreover only consider a secured loan from a loan company that is authorised and regulated by the Financial Conduct Authority.
What are some secured loan examples?
As mentioned, there isn’t just one type of secured loan. You can get a:
- Generic secured loan – like an unsecured personal loan and can be used for any purpose
- Debt consolidation loans – debt consolidation loans can be secured or unsecured and must be used to pay off other debts
- Home improvement loan – just like the above and must be used to improve your property, e.g., a new kitchen or redecoration.
- Second charge mortgage – also known as a home equity loan, the loan is secured with home equity. These loans can be significant and sometimes well above £50,000.
- Guarantor loans – the borrower does not have an asset of their own so the guarantor pledges to pay if they don’t. The guarantor usually has to secure the loan with their own asset as well.
Secured vs unsecured loans
The opposite of a secured loan is an unsecured loan, which does not require an asset to be used as collateral in the loan agreement. As a result, the interest rates offered through unsecured loans may be higher, but this also depends on your finances and credit score.
Note, you can still have assets repossessed and sold if you for not pay back an unsecured personal loan. The lender can take legal action and then ask a judge to use enforcement action, which could include the use of bailiffs. The process may take longer and be more costly for everyone involved.
Can I borrow a higher amount with a secured loan than with an unsecured loan?
Most unsecured loans are capped at around £25,000. You might find an unsecured loan provider willing to borrow you more. On the other hand, you are likely to get bigger loans if they are secured because you are seen as less of a lending risk. But it does depend on your personal finances and credit score as well.
Some secured loans can provide significantly larger credit, such as a second charge mortgage that uses your home equity as collateral.
How risky is a secured loan?
A secured loan is a significant risk because the lender is legally allowed to seize your asset used as security and sell it if you do not pay the loan back. If you are struggling to pay, you should explain your situation to the lender, seek free debt advice from a charity like Step Change and start looking at possible debt solutions.
Most lenders don’t want to have to repossess your asset and are willing to work with you to a solution.
What are the interest rates on secured loans?
The interest rates on secured loans can differ between lenders. Some lenders offer lower interest compared to others. The best interest rates are between 2%-10% at the time of writing and are subject to change. You should always do your own research to find the best deals.
Are secured loans a good idea?
Secured loans can be a good idea if you want to borrow a larger amount of money at a lower interest rate (not guaranteed!). They have some advantages over using an unsecured loan. But they also come with additional risks. They may even have more loan fees and charges.
Consider getting personalised secured loans advice if you want help working out what is best for you.
What happens if I don’t pay my secured loan?
If you do not pay one of your secured loan repayments, the lender will send you a letter or notification asking you to repay immediately. It is at this point that you should engage with the lender and explain what is going on and stopping you from paying. They may find a workable solution for you.
If you ignore their requests for payment, they could begin a process of repossessing your asset listed as collateral in the loan agreement. Note, they can only seize and sell this asset and cannot repossess any other assets not listed in the agreement. The asset is then sold and the money is first used to pay off your arrears and late fees. Any remaining money from the asset sale will be yours to keep.
Where should I look for a secured loan?
Loans secured with assets are available widely across the UK. You can find them advertised with banks and any online loan company. If you want a loan secured with a property or home equity, you can even find them through specialist mortgage providers.
How can I compare secured loans?
You can compare secured loans using the online calculators on each lender’s website. You’ll be able to enter the loan amount you want to borrow and how long you want to pay it back. The calculator will then predict an interest rate and your monthly repayments.
Lenders advertise loans with a representative APR example. This is what 51% of applications received and there is a good chance you’ll be offered something different. The exact interest rate that you’re offered will depend on your personal circumstances and your credit history. Thus, these calculators are not always accurate.
Where can I get secured loans advice?
You can get free advice to help you understand secured loans right here at MoneyNerd. But if you want bespoke advice tailored to your situation, you may want to speak with free money advisor groups or get commercial support. Brokers can help you find the best deals for your situation and even help you deal with application admin – but they come at a cost!
Can secured debt be written off?
You could ask your secured loan provider to write off your debt, but it is extremely unlikely that they will agree to do so. After all, it is much easier for them to recover the money by taking your listed asset and selling it.
However, there may be some debt solutions that can help you overcome your secured loan arrears. Your circumstances will dictate which solution may work for you. You can get debt help to discuss these different options for free in the UK.
Secured loans advice for getting out of debt
There are many groups and debt charities readily available in the UK to help people in any kind of debt, including secured loan debts. Some of the best options are:
- Step Change
- National Debtline
- Christians Against Poverty
- Local community groups
These types of groups provide free support and can even help set up debt solutions, such as a Debt Management Plan or Debt Relief Order. All your personal information is kept confidential and they’re easily accessible over the phone. Some even have online chat support via their website if you prefer not to call.
Is it bad to get a secured loan?
Some people think secured loans are bad because if you cannot pay the money back the consequences can be disastrous. However, not paying back any loan can result in similar circumstances. Taking out a secured loan should be done with caution, but it could be a smart idea if you need larger credit or can access a competitive interest rate.
You can mitigate the risk of a secured loan by borrowing less. This might mean taking more time to save before taking out the loan, so you don’t need to borrow as much and repayments are even more affordable.
Want more secured loans advice?
For more secured loans FAQs answered, read more of our new guides here at MoneyNerd. And if you need personalised loan advice, consider speaking with a debt advice charity. Their debt help is free, confidential and effective.