Compare Best Secured Loan Rates Nov 2024

Home Loans Secured Loans

If you’re a homeowner, or own another valuable asset, a secured loan could be an option if you need to borrow money. The best secured loans can help you to borrow large sums at competitive interest rates by using an asset (such as your home) as security for the lender.

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Disclaimer

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT. Loans are subject to status and valuation, secured on residential property and not available to those under 18. The APRC quoted will be offered to a majority of applicants. You may be offered a higher rate depending on your personal circumstances. All rates and terms may change without notice so please check with Loans Warehouse before undertaking any borrowing.

How does a secured loan work?

Secured loans work in much the same way as any other loan, except borrowers need to put forward an item of value, typically their home or another property, as security (or collateral).

Once an application for a secured loan has been approved, the lender will transfer the money to your account for you to spend it as you choose. They can be used to pay for home improvements or to consolidate debts, for example.

You need to repay the secured loan (plus interest) in monthly instalments for the specified number of years.

If you make all your repayments as planned, there won’t be any impact on the asset used as security.

However, while missing payments on any form of credit can have serious consequences, secured loans come with additional risk. Because secured loans use your home or other valuable item as security, the lender is entitled to repossess this if you fail to keep up with your repayments.

Loans that are secured against personal property, such as your home, are regulated by the Financial Conduct Authority (FCA).

What can I use as collateral for a secured loan?

Secured loans typically use property as collateral. This could be the borrower’s own home or another property they may own and rent out, for example.

However, depending on the lender it may be possible to use other high-value items as security, such as:

vehicles
jewellery
art and antiques
investments , such as a shares portfolio.

Not all lenders will offer loans secured against these items, so it’s important to check what is and isn’t accepted before applying.

How much can you borrow with a secured loan?

It’s possible to borrow tens of thousands of pounds with a secured loan, or even as much as £1 million or more.

However, the amount you can borrow with a secured loan will depend on the value of the property (or other item) put forward as security, as you will only be able to borrow up to a certain percentage of its value.

You won’t normally be able to borrow up to 100% of your property’s value, and many lenders are likely to cap the amount that you can borrow to 80% loan-to-value (LTV), for example.

Whether you have a mortgage secured against the property and the amount of equity you own will also affect how much you can borrow.

For example, if your property is worth £500,000 and you have £100,000 left to pay on your mortgage, secured lenders will base their decision on how much to lend to you on the remaining £400,000.

Other factors, such as your credit history and financial situation (including your income, regular expenditure and existing debts) may also affect how much you can borrow.

Types of secured loan

When most people talk about a secured loan, they will often be referring to a loan that uses their home as security. These may also be known as homeowner loans or second charge mortgages.

What does “second charge” mean?

When it comes to loans secured against your property, there is an order in which the lenders will be paid should you default on the loan(s). If you have a mortgage, this is a “first charge” loan which means this lender will be paid first. If you take out another loan secured against your home, this is a “second charge” which means this lender will only be paid after your mortgage lender.

You may need permission from your mortgage lender before securing another loan against your property.

Bridging loans are another type of secured loan. However, they are designed for more specialist purposes and are only intended to be taken out over a short period of time. For example, they could help you to buy a property before the money from selling your previous property has come through.

If you own a vehicle, logbook loans allow you to borrow money using your vehicle as security. The amount you can borrow will depend on the value of your vehicle and failure to repay the loan could mean you lose your vehicle. Logbook loans typically have high interest rates, so alternative forms of borrowing are likely to be a cheaper and more suitable option.

Long-term vs short-term secured loans

Secured loans typically offer longer repayment terms than unsecured loans, with the potential to borrow up to 25 years or maybe even longer.

Bear in mind that, while longer repayment terms can make a secured loan more affordable with smaller monthly repayments, you would pay more interest overall as you’re borrowing over a longer period.

To minimise the total cost of a secured loan, choose the shortest loan term possible that still allows you to make the monthly payments.

Interest rates and fees

Interest rates on secured loans can be variable, which means the rate could change during the term, or fixed, which means it stays the same.

A fixed rate could make it easier to budget for your payments each month, but you won’t benefit from any decreases in interest rates. By contrast, a variable rate secured loan means your payments could decrease if the lender drops rates, but they could also increase if the lender raises them.

Because lenders can repossess the item used as security to get their money back if you fail to repay a secured loan, they are likely to charge a lower rate of interest than on an unsecured loan.

However, despite the potentially lower interest rates, secured loans often come with a range of fees, which may include:

arrangement, or set-up, fees
broker fees
valuation fees
legal fees.

With lenders charging different interest rates and fees, it can be difficult to compare the total cost of secured loans. This is why lenders display an annual percentage rate of charge (APRC), which shows you how much a loan will cost over one year, taking into account the interest rate and fees charged as standard.

Although you may end up paying more or less than the APRC (if the interest rate changes, for example), it can act as a useful guide when comparing secured loans.

Pros and cons of secured loans

Secured loan rates can be lower than the interest rates on unsecured personal loans.
You can often borrow a larger sum than other forms of borrowing, potentially up to £100,000 or more, depending on the amount of equity you own in your property.
They could help those with poor credit get approved for a loan.

The lender could repossess your home (or the item used as security) if you don’t keep up with repayments.
The application process can take longer than for unsecured forms of borrowing.
You may need to pay an arrangement or set-up fee, as well as early repayment charges if you pay off the loan early.
They can come with longer repayment terms which means you would pay more in interest overall.

Is a secured loan right for me?

If you’re a homeowner or own an item of value, a secured loan may be worth considering if you need to borrow money.

However, it’s a decision that shouldn’t be taken lightly as secured loans are a big commitment and can be risky if things go wrong.

To help you decide if a secured loan is right for you, it’s crucial to work out whether you can afford to take on this debt and repay it. If you haven’t already done so, create a budget to see how much you could afford to pay each month.

It’s also worth thinking about whether you could continue making payments if your utility bills increased, you lost your job, or if your circumstances changed in any other way.

If you fall behind on payments for a loan that’s secured against your home, you risk losing the roof over your head. As a result, you should only ever take out a secured loan if you’re confident about making the repayments in full and on-time.

Even if you can afford a secured loan, it’s worth considering other alternative forms of credit, such as unsecured personal loans, that may be less risky for you.

Risks and consequences of defaulting

Secured loans carry serious consequences if you default and can’t repay them.

Failing to repay a secured loan means the lender is entitled to repossess the item put forward as security, which means you could lose your home if you used it as collateral.

However, repossession is likely to be a last resort, so lenders may be open to negotiation if you’re struggling with repayments. It’s important to contact the lender as soon as you think you may have problems paying, and you may also want to contact a debt charity for extra support and guidance.

If you can’t repay the loan or work out an alternative plan, the lender may start legal proceedings against you which could lead to you losing your home.

Although losing your home is likely to be the main concern, defaulting on a secured loan could also have a serious impact on your credit score and affect your ability to get credit in the future.

Moneyfacts tip Image of Rhiannon Philps

It can be worrying and confusing to know exactly what is happening if you default on a secured loan, so it’s a good idea to get professional advice on your situation for further help.

Can you get a secured loan with bad credit?

It’s possible to get a secured loan with bad credit, although you may not qualify for the best rates.

Borrowers with a patchy credit history may be more likely to be approved for a secured loan than an unsecured loan, and they may be able to access more competitive rates of interest. This is because the security you provide reduces the risk for the lender as, if you don’t keep up with repayments, they can repossess your property to get the money they are owed.

While lenders will run a credit check as part of the application process, your income and overall financial situation, as well as the value of the property used as security are likely to have a greater impact on their decision.

However, it’s important to think carefully about the risks before taking out a secured loan, as falling behind on repayments could further harm your credit score and cause you to lose the property put forward as security.

Secured vs unsecured loans

Some of the main differences between secured and unsecured loans are:

Secured loans	Unsecured loans
They use your home or another item of value as security.	They don’t require any form of collateral.
You can typically borrow larger sums over longer periods.	There’s a limit on the amount you can borrow, and the repayment terms are usually shorter.
They may charge a lower rate of interest.	Unless you have an excellent credit score, interest rates may be higher.
They could charge a fixed or variable rate of interest.	They usually charge a fixed rate of interest.
The application process could take longer and may involve certain fees.	You can often apply for a loan and receive the money relatively quickly, and you don’t usually need to pay any set-up fees.

See our guide for more information on the differences between secured and unsecured loans.

Applying for a secured loan

When you apply for a secured loan, lenders will look at your income and expenditure to assess your affordability, as well as running a credit check (which will appear on your credit history). They will also assess the property you’re using as security, including its value and how much equity you own.

Bear in mind that the application process for a secured loan can take longer than for an unsecured loan because of the paperwork involved in securing a loan against property. It could take several weeks to receive your money, but this will depend on the lender, how you apply for the loan, how quickly you submit the information and how complex your situation is.

Lenders are also likely to charge certain fees, such as arrangement fees, which you need to factor into the overall cost.

Although it may be possible to apply for a secured loan from a lender directly, in most cases you will need to contact a broker. You may be able to check your eligibility online without affecting your credit score but, to formally apply for a secured loan, you will often need to speak an adviser via phone.

Eligibility criteria for secured loans

The eligibility criteria for a secured loan will vary between lenders. However, you’ll normally need to be a UK resident and a homeowner or, depending on the lender, own another valuable asset that you can put forward as security.

The collateral, or security, will be a major factor in whether you can get a secured loan. Lenders will assess the value of your property (and how much debt you have secured on it, if applicable) as part of the application process.

Your income will also be important in deciding whether you get approved for a secured loan. Lenders will want to make sure that you can comfortably afford to repay the loan, so they will assess your income, regular expenses and any existing debt to check your affordability.

If your income is likely to change during the term of the loan, if you retire and start drawing from a pension, for example, you’ll need to show the lender that you will be able to continue repaying the loan.

While lenders will look at your credit history, you don’t necessarily need an excellent score to be accepted. A better credit score could help your application but, because of the added security with a secured loan, secured lenders will still consider applications from those with bad credit.

You need to be at least 18 years old to apply for a secured loan, but many lenders may only consider applications from those aged 21 or over.

Bear in mind that lenders may set a maximum age limit for applications, or an age by which you need to have repaid the secured loan.

Secured loans for self-employed individuals

If you’re self-employed, you will need to meet the same eligibility criteria as any other borrower. However, because self-employed income can fluctuate more each month than an employee’s income, the lender may ask for additional proof of income to make sure you can afford the loan.

Steps to take before applying

Before applying for a secured loan, make sure you’ve considered the following:

Would an alternative form of funding be more suitable?
Do you need the money now, or could you wait?
How much do you need to borrow?
How many years do you want to repay the loan over?
Would you prefer a fixed or variable rate of interest?
How much can you comfortably afford to pay each month?
Do you have a back-up plan to make payments if your income drops unexpectedly, for example?
Do you understand that the lender could repossess your property (or the item used as security) if you fail to repay the loan?

Once you’re certain that a secured loan is right for you and you’re ready to apply, speak to a broker to discuss your options.

Alternatives to secured loans

Instead of taking out a secured loan, it’s worth considering some alternatives, including:

Unsecured personal loans: If you don’t need to borrow a large sum, personal loans may be more suitable as they don’t carry the same risk as secured loans if you can’t make repayments.
Remortgaging: If you need to borrow a larger sum, you could consider borrowing more on your existing mortgage, or remortgaging. This could be cheaper than a secured loan, but you should still only take this option if you can afford it.
Build up your savings: If you don’t need the money straightaway, you could save up some or all of the amount you need. This means you won’t need to take on any debt or, if you do need to borrow, you may be able to use a less risky unsecured loan instead of a secured loan.

Secured loan FAQs

How long does it take to get a secured loan?

The application process for a secured loan can take longer than for an unsecured loan because of the paperwork involved in securing a loan against property. It could take several weeks to receive your money, but this will depend on the lender, how you apply for the loan, how quickly you submit the information and how complex your situation is.

Can I pay off a secured loan early?

It’s possible to pay off a secured loan before the end of the term, but you will often need to pay some early repayment charges. Despite these charges, many borrowers will save money on interest by clearing their debt early.

Are there early repayment charges for secured loans?

Yes, if you want to pay off a secured loan early you will typically need to pay an early repayment charge. To clear your loan, you should contact the lender for a settlement figure, which will include your outstanding balance plus any early repayment charges. They will then give you instructions on how and when to make the payment.

What are the main fees and costs associated with secured loans?

There are several costs to consider when taking out a secured loan, including the rate of interest, arrangement fees, broker fees, legal fees and valuation fees, for example.

Are secured loans easier to get with poor credit?

If you have poor credit, it may be easier to get approved for a secured loan than an unsecured loan. This is because the security you provide reduces the risk for the lender.

Do secured loans impact your credit score?

Yes, secured loans can affect your credit score. When you apply for a secured loan, lenders will run a hard credit check which will appear on your credit file. If you make all your secured loan repayments as planned, this should have a positive influence on your score. However, late or missed payments could harm your credit score.

What happens if the value of my collateral decreases?

If the value of your collateral, such as your property, depreciates, it shouldn’t be an issue if you continue to make your payments and pay off the secured loan in full. However, issues may arise if you default on the loan and the sale of the property isn’t enough to pay off the debt secured on it.

Are secured loans cheaper?

Secured loans typically have lower interest rates than unsecured loans. This could make them a cheaper option, especially for those with bad credit histories, but it’s important to consider the cost of any fees and the risks involved with a secured loan.

How do secured loan repayment terms differ from those of personal loans?

Secured loans usually have longer repayment terms than unsecured personal loans.

Are secured loans available for those with fluctuating incomes?

If you don’t have a steady income, if you’re a contractor or freelancer, for example, it may still be possible to get a secured loan. However, you may need to provide previous years’ accounts and proof of income to show the lender you can afford to repay the secured loan.

What is the biggest downside to variable rate secured loans?

The main disadvantage of secured loans with variable rates is the lender could raise the interest rate. This would increase your repayments, which could make it harder to plan and budget for them.

What is the difference between a secured loan and a mortgage?

A mortgage is a type of secured loan. Mortgages and secured loans can both be secured against your property, but they have different purposes. Mortgages are designed to help you buy a property and are typically for large sums. By contrast, secured loans are for those who already own their home and can be used for additional funding for home improvements, for example.

Does a secured loan affect a mortgage application?

A secured loan could affect your mortgage application, if you’re planning to remortgage or move house, for example. Mortgage lenders will factor in your secured loan payments when conducting their affordability assessments, and any loan secured against your property will affect the loan-to-value. The less equity you own in your property (and so the more debt you have secured against it), the higher the interest rate you may be charged. It’s worth seeking advice if you want to apply for a mortgage with an existing secured loan.

Can I sell my house if I have a secured loan on it?

It’s possible to sell your house with a secured loan on it, but the best approach will depend on your situation. Ideally, you would pay off your loan in full before selling your home, but this isn’t always possible. You may choose to pay your secured loan off in full after selling your property or, if you’re buying a new property, you may be able to transfer your secured loan to it. However, not all lenders allow transfers and those that do may charge admin fees. Always speak to the lender if you’re thinking of selling your property.

Can I take out a second secured loan on my property?

Whether you can take out a second secured loan on your property will depend on how much equity you own. If you own sufficient equity, even with the existing debt you have secured on the property, and pass a lender’s affordability checks, it may be possible to take out another secured loan. However, lenders may be reluctant to offer a further secured loan on a property as there’s a greater risk that they won’t get their money back.

Overall, it will depend on your individual situation. But, if you’re considering a second secured loan, it’s worth considering whether taking on further debt is the best option for your situation. Seeking professional advice is likely to be more suitable if you’re struggling financially.

Does a secured loan on my property show on the Land Registry?

Yes, whenever a loan is taken out against your property (such as a mortgage or secured loan), the lender will register a charge with the Land Registry. This confirms that the lender has a legal interest in the property and gives it certain rights if you don’t repay the loan, for example.

Are there restrictions on how you can use a secured loan?

When you apply for a secured loan, the lender may ask how you plan to use the money. Lenders typically won’t offer loans for certain uses. Home improvements and debt consolidation are popular uses, but borrowers could use a secured loan for other purposes such as a holiday. However, it’s important to consider whether the risks of a secured loan are worth it for non-essential purchases.

If I get a secured loan against my car, can I still drive it?

Yes, if you secure a loan against your vehicle (known as a logbook loan), you can continue to drive it while you make repayments. If you fail to repay the loan, the lender can repossess the vehicle.

Rhiannon Philps

Content Writer

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