Secured loans

What are secured loans?

Secured loans are when you borrow money that is secured against an asset you own. The most common asset to secure a loan against is your home, in which case the loans are often also referred to as second-charge mortgages, further charge loans or 'homeowner loans'. 

When you apply for a secured loan, the lender will ask you to put up that asset as security. This means that if you cannot repay the loan, the lender can sell the asset to recoup the money you owe. If you’ve secured against your home, it could be repossessed.

Mortgages are a form of secured lending, used to purchase a property. Secured loans, however, can be used for any purpose.

Is a secured loan the best loan for me?

Typically, homeowner loans or secured loans are used for longer-term borrowing. They can have repayment periods of up to 35 years.

Whether a particular loan is right for you depends on your individual needs and financial circumstances, especially whether you will be able to service the loan by making all repayments when they become due.

Secured loans are generally used to borrow larger sums of money. That said, you can find providers offering loans of as little as £3,000, while some offer up to around £500,000, though providers set their own minimum and maximum limits. This could be to fund a large expense like a wedding or making home improvements.

Secured loans are useful if you want to repay them over a long period of time. The longer term typically means that your monthly repayments will be much lower than a standard personal loan. The downside of a long-term loan is that you are likely to end up paying more in interest overall and your home is at risk if you fail to make the payments.

Banks and lenders are keen to offer secured loans and homeowner loans in part thanks to the lower risks to them. This opens a range of options for borrowers who can compare secured loans and find the best deal for them. You can also use our secured loan comparison tool and online loan calculator to see how much you can borrow.

How much do secured loans cost?

As with most loans, the cost of the loan depends on the interest rate you're offered, and any fees associated with the loan.

Interest: The interest rate you’re offered will determine how much your monthly repayments will be. The rate will also affect how much you pay in interest overall over the term of the loan. This is why it's important to use a secure loan comparison tool to compare homeowner loans and find the best deals.

Some homeowner and secured loans have variable interest rates – meaning some months your repayments could cost more than others. If you are unsure about being able to afford higher repayments, or want the certainty of a fixed repayment plan, you should avoid this type of loan.

Fees: Some lenders may charge fees in relation to your loan. These can be arrangement fees, broker fees or, in the case of secured loans, valuation fees to check how much the asset you’re securing the loan against is worth. It's important to know the total cost of a loan so that you understand what you have to repay, looking at the APRC will allow you to compare all the costs.

How does a secured loan compare to other loans?

Secured loans give borrowers access to a large amount of money at fairly short notice, which for many people is their main advantage.

Borrowers who use a secured or homeowner loan will also typically pay a lower interest rate than with a personal loan. Lenders will see you as less of a risk because the loan is secured against your home, so they can sell the asset to reclaim their money if you can’t afford the repayments.

You will need to repay the loan in instalments every month. If the interest on the loan is fixed you will repay a set amount each month. If the interest rate is variable, this amount can change.

What are the disadvantages of a secured loan?

The main downside of a homeowner or secured loan is the risk you are taking with your property or other assets if you fall behind on repayments.

With a personal loan, if you are unable to repay the amount you have borrowed it will damage your credit score, or in the worst case you'll have to declare bankruptcy. Borrowers who fail to maintain repayments on a loan secured against their property can lose their home.

This is why you should only consider taking out a secured or homeowner loan if you are confident you can maintain your payments.

How does a secured loan compare to remortgaging?

The main alternative to a secured or homeowner loan is to remortgage your property. The risk your home will be repossessed if you fail to meet the repayments still applies. However, if you have a large amount of equity in your home remortgaging may give you access to cheaper interest rates.

Does 'representative' APR mean I won’t get the best loan on offer?

Often when you compare secured loans, loan comparison websites advertise an APR or APRC. This is a calculation of the cost of the loan, which includes the interest rate and any fees charged.

The ‘representative’ APR means that's the rate offered to at least 51% of a lender’s customers when taking out the personal loan. Unfortunately, that means that some people will end up being offered a higher rate.

Your personal circumstances will determine how much a lender will charge you for a loan. It's possible you might not get the 'representative' interest rate on offer when you compare secured loans on loan comparison sites. 

To get the best deal, or have access to a cheap loan, you'll need to have a good credit history with a high credit score. If you have defaulted on loans or credit card bills in the past, you may struggle to be approved for a secured or homeowner loan as your credit score may be lower.