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Author: Carl Shave-Director
Updated on January 30th, 2024

Secured Loans

A secured loan is where you use your property as security against the money you borrow – using the asset value of your house to show you are not a high risk, making it more secure for the lender.

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What is a Secured Loan and how can it help me?

A secured loan is where you use your property as security against the money you borrow – using the asset value of your house to show you are not a high risk, making it more secure for the lender. This means that interest rates are usually lower than those for an unsecured loan, and you should have less hurdles to negotiate on the way to getting the loan that will help expand your business, or your house.

However, taking out a secured loan against your home is always a risky proposition, because if you fail to make the repayments, your property could be repossessed.

Most personal loans from a bank or a building society are not secured in this way, but it is increasingly becoming common for those in financial difficulty to use a secured loan to help them get back on track.

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Why would you choose a Secured Loan Over an Unsecured Loan?

Clearly, a loan where your home isn’t at risk is preferable to one where it is. However, secured loans do have some advantages, such as:

  • They are easier to obtain. Unsecured loans tend to be cheaper, but those with poor credit scores will usually have their loan application refused. Secured loans allow lenders to consider those with an adverse credit rating because they know, one way or another, they will get their money back.
  • You can borrow more. The most you can borrow on an unsecured loan is approximately £30,000, while some secured lenders will let you borrow up to £75,000.
  • The debt is spread over a longer period. Due to the larger amounts of money involved and the significant set-up costs, secured lenders prefer the loan to be repaid over a longer period of time, typically 5 to 20 years. Of course, borrowing over a longer period does increase the interest repayments, but it also reduces the monthly repayment.

Secured Loans for Home Improvements

If you are looking to improve your home with an extension, conservatory or through general repairs or improvement, a secured loan can be an ideal way to raise funds. In recent years, due to low interest rates, many borrowers have opted to remain on the low rate that they have and borrow using a secured loan, rather than remortgage.

Secured Loans for Debt Consolidation

For many, it can be cost effective to consolidate a group of debts into a single, more manageable payment. It is necessary, however, to take great care to ensure that this is the correct course of action. Debts – such as credit cards, personal loans, store cards and more – are short term debts, and if you consolidate these with a secured loan the term will increase – which could increase the amount of interest you pay.

Bad Credit Secured Loans

Due to the number of lenders within the secured loan market, it is possible to obtain a loan even if you have bad credit. Whether this encompasses defaults, CCI’s or bankruptcy, we may be able to help. If the rest of the application is of good quality – along with sufficient equity in your property – you stand a good chance of being approved.

Secured Loan Lenders

There is now a wide variety of lenders who offer secured loans covering most situations. Your dedicated loan broker will be able to offer you advice as to the most suitable lender for your circumstances.

Secured Loan Rates

Because the lender has security over your property, the rates for secured loans can be competitive. As a result, lenders will take into account various factors when determining the rate of interest you will pay, such as:

  • Your age
  • Your income and expenditure
  • How much equity you have in your property
  • Your credit situation
  • Affordability
  • The condition of your property
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  • How is interest charged on secured loans?
  • How much does a secured loan cost?
  • Can you repay secured loans early?
  • What happens if you miss a payment?
  • What should I watch out for?

Typically, the interest charged on unsecured loans is fixed for the whole period of the loan. The interest charged on secured loans is usually variable, and can shift with the changing tides of the UK base rate, or in line with the lender’s standard variable rate.

Whenever you’re considering a long term loan with variable interest rates, it’s essential you think carefully about whether you’d be able to afford the repayments if interest rates were to rise. If there’s any doubt in your mind, a variable rate secured loan is not appropriate for you. There are some lenders that offer fixed rate secured loans, although the fixed rate will usually only last for a limited period. You should also check the fees and charges, as there can be penalties for paying off your debt early.

As with any loan, there are a number of factors that determine the rate you will be offered. The duration of the loan, your credit score and the amount of equity in your home will all be taken into account. As mentioned previously, secured loans do present a viable option for those with poor credit scores, as the security provided overrides the risk. However, people with poor credit can still expect to pay more for a secured loan.

It is possible to repay secured loans early, but it can be costly. Secured loans are very limited in their flexibility, so even if you have a sudden cash injection from another source, you may not be able to repay your debt early without attracting a hefty fee.

Losing your home is a very real risk with a secured loan. However, generally speaking, it is less profitable for lenders to go to the trouble of repossessing your home, rather than giving you a little bit of extra time if you’re struggling to make the repayments. If you are worried about missing a payment, make sure you contact the lender immediately to explain your situation and possibly renegotiate the payment schedule.

If you miss a repayment, there will also be a negative impact on your credit score. Some lenders will also charge you for producing letters to inform you of arrears on the loan, and this can be added to the cost of your loan with interest.

Go over your plan. At the Mortgage Centres, we take the time to go over your finances with you, and make sure that you’ll be able to meet the conditions of any loan. We help you to see what you can afford, what plans and contingencies you should have in place, and make sure that you’ll be in a comfortable position going forward.

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