Secured Loans FAQ
Secured loans, known sometimes as 'homeowner loans', or 'home equity loans', are loans that use an asset belonging to the borrower as security. In the majority of cases it will be the borrower's house, but it could also be a car or other valuable belonging.
These financial options, primarily aimed at property owners, offer an option for borrowing larger sums of money than might be afforded by other personal loans - using the collateral equity in the property as security against repayments.
Secured loans are less risky for lenders - which is why they're cheaper than unsecured loans, but they present risks to you as a borrower because your home or property may be repossessed if you do not keep up with repayments.
What is a secured loan?
The most commonly available secured loans are only available to mortgage holders, or people who own property. They allow the lender to forcibly take and sell your home to regain their finances if you cannot repay the money that you borrowed.
The "secured" aspect of secured loans therefore offers security to the lender - not the borrower, in favour of lower repayments and better interest terms.
What are the benefits of a secured loan?
Borrowers consider secured loans for a variety of different reasons, for instance:
- They're easier to obtain: Secured loans are almost always more accessible, particularly for those with poor credit scores, and they come with better rates too.
- You can borrow larger sums: The maximum amount that lenders are willing to offer for secured loans is often much higher than what may be available for unsecured loans.
- You can borrow for longer: Secured lenders allow loans to last for longer - as this helps to offset large set-up costs. Remember, while borrowing for longer reduces your monthly repayments, it also increases the total interest you pay.
What will my interest rate depend on?
The interest rate that you're offered for a secured loan will depend on the size of the loan, the repayment terms offered, your credit score, and the equity available in your home. It's generally the case that people with higher credit scores will get a better deal.
How do I work out the real cost of my secured loan?
While the APR (Annual Percentage Rate), is often very prominent in loan terms, it's not the only figure worth considering. Focus on your monthly repayment and the "Total Amount Payable". The Total Amount Payable includes charges and fees, and offers a much clearer representation of how much any loan will cost you.
If you cannot find this information on the lender's website, you will be able to see it on the pre-contract credit information form given by the lender before you enter into a loan agreement.
How long should I borrow for on a secured loan?
With secured loans, it's best to look at your budget and work out the maximum amount you can commit to repaying each month using a budget planner. Don't overestimate your available cash, or you could end up being unable to make repayments, risking your home, and your financial stability. Good planning is crucial.
What happens if I miss repayments on a secured loan?
In a worst-case scenario, missing repayments on your secured loan could lead to the repossession of your home. However, it is possible to speak to your lender if you feel that you might not be able to make repayments, as some will be willing to re-negotiate your situation and give you another chance when it comes to paying what you owe.
If you're worried you might not be able to make an upcoming payment, it's advisable to talk to your lender sooner rather than later to see if an arrangement can be made.
How can I get the best secured loan deal?
Secured loans, like many loans, are subject to competition amongst providers and market forces. There are various providers whose rates may change regularly, and shopping around will give you the best chance of getting a good deal. Use our secured loans comparison table above to get started.