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Short-Term Secured Loans – Overview, Tips & best Options

short term secured loans

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Short term secured loans can be a good option for people and families wanting a smaller amount of credit with a good interest rate. 

Refresh your knowledge of secured loans below and find out more about short term secured loans, including an example from the loan market right now. 

What is a secured loan?

A secured loan is a loan – usually for a larger amount – that requires the person taking out the loan to use one of their assets as collateral in the credit agreement. In simple terms, this means the lender can take your asset and sell it to recover any unpaid loan arrears and remaining debt if you cannot keep up repayments. There are many different types of secured loans, such as short-term secured personal loans and loans that secure debts against your home like homeowner loans. 

Think carefully before securing a loan agreement with one of your assets. Taking out a secured loan against your property or home equity and not sticking to monthly repayments could mean your home may be repossessed. Moreover, only consider options through lenders that are authorised and regulated by the Financial Conduct Authority (FCA). 

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How do secured loans work?

Secured loans work in a similar way to any other loan, providing the borrower with a lump sum amount that is repaid through monthly repayments over a pre-agreed loan term. These repayments consist of repayment on the capital amount and an interest rate. You can usually repay the loan early but must be willing to pay an early repayment fee to do so. 

If you take out a secured loan and fail to pay it back, the lender can repossess your asset and sell it to recover the arrears and remaining loan debt. This is where secured and unsecured debts differ. Yet, unsecured debts can still be chased to the courts and result in enforcement action which can lead to assets being seized and sold by bailiffs. It is easier and quicker for a secured debt to be recovered by a lender. 

The benefits of secured loans

The benefits of using a secured loan are:

  1. These types of loans allow you to borrow more money compared to unsecured loans
  2. Secured loans typically have lower interest rates, although this does depend on personal finances and your credit score. 

On the flip side, there is an additional risk using a secured loan because the lender has the automatic right to seize and sell your asset if you’re struggling to meet monthly repayments.

Are secured loans easier to get?

Another benefit of secured loans is that they are considered somewhat easier to get approved compared to unsecured loans. Because you have an asset on the line in the loan agreement, you are considered less of a risk. And because you are less of a risk, you may find it easier to get approved for a secured loan over an unsecured loan. This may be of interest to people with a poor credit history. 

What is a short-term secured loan?

A short term secured loan may refer to any type of secured loan that is available with a short repayment term. The repayment term is the amount of time you need to repay the loan. When you apply for a secured loan, you need to indicate how many years you need to repay as this affects what you are able to borrow and the rate of interest offered. 

Most secured loans can be repaid over periods of time as short as a couple of years to as long as over three decades (e.g. some first charge mortgages and home equity loans). If the secured loan is repaid in three or fewer years, it is generally considered a short-term secured loan, although there is no definite definition of what does and does not constitute a short term secured loan. 

You’re more likely to get approved for a short-term secured loan if you take out a smaller loan amount, or if you borrow well within your budget. Some lenders have minimum secured loan amounts as high as £10,000. It can be difficult to find short-term secured loans if you need to borrow significant credit at the same time.  

Where can I find short term secured loans?

Short term secured loans are advertised by lenders in the UK. You will have to complete your own research at the time of reading, but you can usually see them advertised at UK banks and online loan lenders. 

Short term secured loans – an example!

To give you an example of a lender offering short term secured loans at the time of writing, we have done some digging. 

Norton Finance offers secured loans from £3,000 to £100,000 that can be repaid over a period of time from as little as one year, depending on your ability to repay the loan in that timeframe and your credit score. Because you can repay the loan in just a few years, it makes this a potential short term secured loan. Norton Finance’s representative example rate starts at 2.99% but changes based on the amount you want to borrow. 

This loan is provided as an example only and you should complete your own research. It might not be the best option for you. 

How can I compare short term secured loans?

To compare short term secured loans, and any type of secured loan for that matter, you can use loan calculators. Most lenders nowadays add a calculator to their web pages whenever they advertise a loan. This calculator asks you to enter the loan amount you hope to be approved for and the length of time you need to repay. It then uses this information to show you what your monthly repayments would be if you were approved.

However, short term secured loan calculators are based on a representative example rate only, which is what 51% of applicants received (or better). Therefore nearly half of successful applicants will be offered a higher rate of interest than the representative example used to work out your repayments, meaning the calculator is not accurate for those people. 

You might also want to consult loan comparison websites which can be effective to get a good overview of loan options quickly. There are a number of comparison websites around to choose from. 

How quick can you get a secured loan?

Approval for a secured loan can take a couple of weeks. The reason these loans are not as quick to process compared to unsecured loans is that the asset used to secure the loan may need to be valued. You might need to get an updated valuation of your property before the loan is approved, in line with responsible lending practices.

However, there is some potential for a short-term secured loan to be quicker. If the individual is borrowing over a shorter period, presumably for a much smaller amount, then an appraisal of a property may not be always required. And thus, it might be quicker to get a short-term secured loan. 

However, this won’t always be the case and these loans may still take over a month to get a decision and offer. Once an offer is accepted, the sum of money is likely to be in the borrower’s account within 1-3 working days. 

Do secured loans require a credit check?

Any legal lender that is authorised and regulated by the Financial Conduct Authority will check your credit rating. They do this to see how you have managed your finances in the past and how efficiently you have repaid previous loans. You may want to improve your credit rating before applying. 

What credit score do I need to get short term secured loans?

Short term secured loans require a good or excellent credit score to get offered a lower interest rate. There is no fixed score as a benchmark because each lender can apply its own tests and judgements. 

Can I get a short term secured loan with bad credit?

You can still get approved if you have an unsatisfactory or poor credit score. You may not be able to borrow as much and you could be subject to higher interest because you will be seen as a greater lending risk compared to someone with good credit. 

We’ve discussed bad credit secured loans in detail here

More about short term secured loans

Access more free information and top tips about secured loans at MoneyNerd. Our team has just released stacks more articles and guides discussing these popular loans. If you have a secured loan question, we’ve probably already answered it!