Secured loans

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What is a secured loan?

Secured loans, also known as homeowner loans or second-charge mortgages, allow homeowners with an existing mortgage to borrow money using their property as security (also called 'collateral').

This type of personal loan typically allows borrowers to access larger sums of money, often being used for significant expenditures, like consolidating large debts or renovating property. As the loan is secured against the value of your property, it means that if you do not keep up with loan repayments, the lender may decide to sell your property in order to recover the borrowed funds.

Types of secured loans

Before making your decision, consider exploring the various types of secured loan:

Debt Consolidation Loans

Debt consolidation loans are designed to simplify your debt. They work by consolidating multiple debts into a single loan that you can manage with just one monthly payment, often with a lower rate. This type of loan is ideal for those looking to uncomplicate their repayments and reduce the total interest paid over time.

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Homeowner Loans

Homeowner loans, also known as home equity loans or second charge mortgages, allow you to borrow money against equity you've built up in your property. These loans are typically used for large expenses such as home improvements and major life events with the amount you can borrow being dependent on the equity available in your home.

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Car Finance

Car finance loans, also know as logbook loans are specifically used for purchasing vehicles. This option is particularly useful for raising money by individuals who may not qualify for traditional auto loans. By leveraging home equity, borrowers can often secure more favourable interest rates and terms, making this a viable alternative for owning a new or used car outright.

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Bridging Loans

Bridging loans are a short-term lump sum, designed to cover immediate expenses while waiting for additional funds to become available. They are often used in property transactions to "bridge the gap" between purchasing a new property and selling an existing one. Bridging loans provide a quick influx of cash but typically come with higher interest rates due to their temporary nature.

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Secured and Unsecured Loan

The difference between secured lending and an unsecured loan lies in the use of collateral:

Secured Loans

Secured loans work by requiring an asset for collateral, providing security to the lender but increasing risk for the borrower. When secured borrowing, it's important to make payments on time and in full, to avoid losing your home.

Unsecured Loans

An unsecured loan does not require a secured asset (collateral), making them riskier for lenders and usually requiring a better credit score from the borrower. Unsecured loans typically offer much less borrowing amounts.

Secured Loan Pros and Cons

Advantages of secured loans

  • Higher Loan Amounts: Secured loans allow you to borrow significantly higher than typical personal loan limits as the maximum amount is tied to your home equity. 
  • Longer Repayment Terms: This can make monthly payments more manageable helping you to make regular repayments. 
  • Accessibility: Taking out a secured loan can be easier for those with poor or no credit history, as the property acts as security for the lender.

Disadvantages of secured loans

  • Risk of Asset Loss: The most significant risk when comparing an unsecured loan vs secured loan is losing your home if you cannot meet the repayment terms. 
  • Higher Overall Cost: Longer repayment periods can mean more money paid in interest over the life of the loan. 
  • Early Repayment Penalties: Some lenders tend to apply early repayment charges, which can complicate refinancing or early settlement.

Is a Secured Loan Right for Me?

Choosing a loan secured against your home is an important decision that requires careful consideration. Evaluate your ability to meet repayment terms over the entire loan period, taking into account that interest rates tend to fluctuate. Depending on how many other loans or commitments you have, be sure to explore all the available options, including personal loans.

Applying for a Secured Loan

1. Compare Deals
2. Quote
3. Advice Call
4. Loan Offers
5. Application
6. Review Your Agreement

1. Compare Deals

Begin by looking into the secured loans available. Compare what banks, online lenders or secured loan providers are offering, taking particular interest in their rates, terms, and eligibility requirements to find the best fit for you.

2. Quote

Complete a secured loan quote form here. You'll be asked for details on yourself and your finances including employment history, income, expenses, and the purpose of the loan. The quote, includes a soft credit search that does not impact your credit score but allows advisors to check your eligibility for offers.

3. Advice Call

You'll have an advice call to discuss whether a secured loan is right for you. Your advisor will discuss your reasons for the loan and will do a basic affordability check.

4. Loan Offers

Lenders will begin sending offers detailing the amount you are able to borrow, the interest rate, your repayments, and any fees. You should carefully review each offer to full understand the terms and costs.

5. Application

Start the formal loan application if you decide to accept an offer. The lender will also perform a full credit check to assess your creditworthiness. This step is similar to the original mortgage application process and includes gathering your documents. The type of documents that may be needed:

  • Proof of identity (e.g., passport or driver’s license)
  • Proof of address (e.g., utility bill or bank statement)
  • Proof of regular income (e.g., pay slips, tax returns)

6. Review Your Agreement

This stage includes signing your agreement with the lender. Pay special attention to the interest rate, monthly repayments, introductory period, and any penalties associated with early repayment or default. Understanding these details is essential to ensure that you are fully aware of your commitments and don't risk losing your home. Completion is typically within 14days.

Preparing to Apply for a Secured Loan

When submitting your application for a loan secured against your home, you'll need to provide proof to the lender. To help with the process, we've provided a checklist of documents you'll need to gather to prepare for your loan application.

Your Identity
Valid government-issued identification such as a passport or driver’s license.
Your Income
Recent payslips, typically covering the last three to six months.
If self-employed, the last two years of tax returns or SA302 forms.
Additional documentation of other income sources like bonuses, commissions, or benefits.
Where You Live
Recent utility bill, council tax bill or home insurance policy.
Property Ownership
Details of the property being used as collateral, including a recent mortgage statement.
A recent property valuation report (although some lenders may complete this for you).
Affordability Check
Recent bank statements, typically for the last three to six months, to demonstrate income.
Details of other debts, loans or other property.
Credit History
Be aware of your current credit score and history, as lenders will review this information.
Obtain a credit report to check for any inaccuracies or outstanding issues.

Best Secured Loan Lenders in2024

Editor's Picks: Top providers vetted and ranked to help you borrow with confidence.

United Trust Bank

United Trust Bank Secured Loans Review

Editor’s Pick

★★★★☆

Maximum LTV

85%

Available amounts

£10,000 to £500,000

Available terms

3 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Pepper Money

Pepper Money Secured Loans Review

Editor’s Pick

★★★★☆

Maximum LTV

100%

Available amounts

£5,000 to £1,000,000

Available terms

3 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Equifinance

Pepper Money Secured Loans Review

Editor’s Pick

★★☆☆☆

Maximum LTV

75%

Available amounts

£5,000 to £100,000

Available terms

3 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Together Mortgages

Pepper Money Secured Loans Review

Editor’s Pick

★★★★★

Maximum LTV

75%

Available amounts

£20,000 to £250,000

Available terms

3 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Tandem Bank

Pepper Money Secured Loans Review

Editor’s Pick

★★★★☆

Maximum LTV

80%

Available amounts

£10,000 to £250,000

Available terms

5 to 25 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Selina Finance

Pepper Money Secured Loans Review

Editor’s Pick

★☆☆☆☆

Maximum LTV

85%

Available amounts

£10,000 to £250,000

Available terms

5 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Loan Logics

Pepper Money Secured Loans Review

Editor’s Pick

★★★☆☆

Maximum LTV

75%

Available amounts

£5,000 to £200,000

Available terms

3 to 25 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

West One

Pepper Money Secured Loans Review

Editor’s Pick

★★★☆☆

Maximum LTV

85%

Available amounts

£10,000 to £500,000

Available terms

3 to 35 years

Rate options

Fixed and Variable

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Eligibility Criteria
Summary
Key Features

Central Trust

Pepper Money Secured Loans Review

Editor’s Pick

★★★★★

Maximum LTV

90%

Available amounts

£10,000 to £250,000

Available terms

3 to 25 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Norton Home Loans

Pepper Money Secured Loans Review

Editor’s Pick

★★★★★

Maximum LTV

80%

Available amounts

£3,000 to £250,000

Available terms

1 to 25 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Spring Finance

Pepper Money Secured Loans Review

Editor’s Pick

★★☆☆☆

Maximum LTV

80%

Available amounts

£10,000 to £200,000

Available terms

2 to 30 years

Rate options

Fixed and Variable

Get your quote

Eligibility Criteria
Summary
Key Features

Frequently Asked Questions

Can I Pay Off a Secured Loan Early?

While paying off a loan early can be financially liberating, it often comes with penalties. Some companies may charge you an early repayment fee for doing so. These fees typically range from the cost of one to three months’ interest. Before you overpay, check with your lender whether a fee will apply and how much it will be.

How Much Can I Borrow on a Secured Loan?

The amount you can borrow with a secured loan depends on the value of the asset you're using as security. Lenders will typically not loan you over 90% of your property value (loan to value ratio). But it's based on factors like your income, credit score, if you have any other asset to use and if you can afford the repayments. It's best to compare the market to see how much you might be eligible for.

Who is Eligible For a Secured Loan?

In order to be able to borrow or qualify for secured credit, borrowers must have accumulated equity in a property. Equity refers to the part of your house you own entirely. You can calculate how much equity you have by subtracting the amount you still owe on your mortgage from the current value of your home. The more equity you have, the more you can potentially borrow. In simple terms, higher equity means you own more of your home, which can help you get a bigger loan.

How Does a Secured Loan Work?

When you take out a secured loan, you agree to make regular monthly payments to cover the loan amount plus interest. The interest rate might be a fixed rate or variable, depending on the terms you choose. If you choose a longer repayment term, your monthly repayments will usually be lower, but you will pay more interest overall. A shorter repayment term will have higher monthly repayments, but you will pay back less interest in total. Successfully keeping up with your monthly repayments means you maintain ownership of your home, while failure to do so could lead to significant financial and personal loss.

What Happens if I Default on a Secured Loan?

All loans come with risks. For example, your credit score may decrease if you fail to make your repayments on time. However, defaulting on a secured loan allows the lender to take possession of the collateral - your home. Before this drastic step is taken, it’s often possible to negotiate terms with the lender if difficulties arise. A default is noted on your credit report, will affect your credit score and future lending opportunities often resulting in terms that have more interest.

What Credit Score do I Need for a Secured Loan?

For a secured loan, having a "good" credit score between 881 and 960 can help you get better interest rates, but it's not always required. Since the loan is backed by your home, lenders may be more flexible with credit scores. Generally, a higher score increases your chances of approval and getting favourable terms. It's a good idea to compare lenders, using one of our calculators to get an idea of their requirements.

Can I Apply for a Loan With Bad Credit?

We have a selection of second-charge lenders who offer loans if you have a bad credit history and if you make your payments on time, you can improve your credit score. Our lenders also accept CCJs and defaults, even if they’ve occurred in the last 12 months.

Can I Sell my House With a Secured Loan on it?

Yes, you can sell your house with a secured loan on it. The money from the sale would pay off your secured loan together with your first-charge mortgage. Typically, your conveyancing solicitor will handle this aspect and deal with the lender during the sale process.

Related LoanGuides

We make secured loans easier with detailed guides that walk you through every step.

Our expert says:

‘’Secured loans may be a good option if you need to borrow a large amount of money and have a home to use as collateral. They often come with lower interest rates, making them useful for things like debt consolidation or home improvements.”

Lawrence Howlett, Secured loans expert
👇

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