A Complete Guide to Secured Personal Loans

A secured loan is a type of personal loan that lets you access large sums of money for relatively low interest rates. When you choose this type of finance, you are required to provide some form of security as collateral for the loan.

Although they work similarly to unsecured loans, they tend to be the riskier option. However, if you’re confident in your ability to make repayments - a secured loan could be the financial solution you need.

• What is a secured loan?
• How does a secured personal loan work?
• What to consider before taking out a secured loan:
• What can a secured personal loan be used for?
• How long does it take to get a secured loan?
• What are the alternatives to secured loans?
• Are secured loans easier to get?
• Are secured loans safe?
• Can I get a secured loan for bad credit?
• How much can I borrow with a secured personal loan?
• What documents do I need for a secured loan?
• What happens if I fail to make a payment?
• Where do I go for help if I’m in financial difficulty?

What is a secured loan?

A secured loan, also referred to as a ‘homeowner loan’, is a long term funding product that lets you borrow money against your personal assets. In order to be able to access the loan, the equity of your assets or property is taken into account as security against your repayments.

The risk with secured loans is that if you fail to make repayments, your collateral can be claimed by the lender. This means that you could lose your car, house or other valuable assets you have put forward in order to borrow the money.

How does a secured personal loan work?

Secured loans are leveraged around the assets a borrower is able to put forward when making an application. There are two types of secured loans:

1. Fixed-rate secured loans

   Much like a mortgage, a fixed-rate means you’ll be paying the same amount in repayments and interest rates for a fixed period. After which, you will be charged the lender’s standard variable rate (SVR).

2. Variable secured loans

   Variable secured loan repayments and interest rates fluctuate based on the Bank of England base rate.

With secured loans, you receive the money upfront in full, then make monthly repayments with interest. Because these loans are less risky for the lender, it can mean lower interest rates for you as the borrower.

What to consider before taking out a secured loan:

There are a number of factors to consider before choosing a secured loan. If you aren’t certain in your ability to meet repayments, you risk getting into debt you can’t afford to repay and losing expensive assets.

Before taking out a secured loan, you should:

• Think carefully about whether or not you can afford to pay back the loan over the term.
• Research and compare different lenders to ensure you find the most competitive deal.
• Make sure the lender you have chosen is registered by the Financial Conduct Authority (FCA) and listed on the Financial Services Register.
• Read the lender’s eligibility criteria carefully. Many secured loan providers ask the applicant to be over 21 years of age.

What can a secured personal loan be used for?

Secured personal loans are usually used to finance large purchases, such as major medical expenses, home improvements or renovations. There aren’t usually any restrictions on these loans, which means you can choose to spend the money as you please.

However, taking out a secured loan is a big decision and not one that should be taken lightly. Always make sure you are borrowing as a last resort for essential purposes.

How long does it take to get a secured loan?

Secured loans take longer to arrange than unsecured loans. This type of personal finance can take anywhere from a few weeks to a few months or more depending on the complexity of the application.

The reason secured personal loans tend to take longer to process is due to all the additional required paperwork and checks. When you put forward an asset as security for the loan, a valuation needs to be arranged and carried out by a third-party to determine the asset’s worth and risks involved.

The easiest way to speed up the process is to send all required paperwork to the lender as soon as possible. If you need fast access to finance, an unsecured personal loan might be a better option.

What are the alternatives to secured loans?

As mentioned, if you’re looking for a secured personal loan alternative that doesn’t require putting your assets at risk, you could consider an unsecured personal loan.

Although this loan option might mean you have to borrow a smaller amount of money, it is a good option if you need to access money quickly and don’t want to risk valuable assets as collateral.

Another alternative could be to borrow money from friends or family members. Before you apply for a loan, please consider whether you need one.

Are secured loans easier to get?

Secured loans can be a good option for you if you have a poor credit history. This is because, for the lender, there is less risk associated with lending you the money. With collateral secured against the loan, if you default on repayments for any reason, the lender can recoup the money through your collateral.

Are secured loans safe?

Secured loans are a safe form of borrowing money, but only if you are confident that you can make the required repayments and interest rates. If not, as we’ve mentioned already, you risk having your home repossessed or losing any other assets you’ve placed against the loan.

Can I get a secured loan for bad credit?

Yes, you could be eligible to receive a secured loan with bad credit. As you are offering an asset for the loan, the risk to the lender is lower so you might find it easier to be approved for this type of loan than others.

It’s important to remember that all applications require a credit check which will show on your credit file whether you are approved, or declined. Before applying for a secured loan you should take steps to improve your credit score. Boosting your score can increase your chances of approval, and you can check your file for free using a credit reference agency like Credit Karma.

How much can I borrow with a secured personal loan?

Secured loans allow you to borrow a lot more money than unsecured loans. The exact amount you will be able to borrow will depend on various factors, including your asset or property’s equity (how much you own outright), your income, credit history and affordability.

Due to the fact that secured loans give you access to larger amounts, you can expect longer repayment terms from 2 years to 30 years+.

What documents do I need for a secured loan?

The documents you need when applying for a secured personal loan will vary from person to person. The majority of lenders will ask for documents to evidence things like proof of assets, personal debts, income, ID and credit profile. You will also need valuation documents for your chosen asset.

What happens if I fail to make a payment?

In the event you fail to make a repayment, you could be at risk of losing the asset you have used as security against the loan. For this reason, it’s crucial to create a foolproof repayment plan and stick to it.

If you think you could be at risk of missing a payment, we encourage you to talk to your lender as soon as possible. They will help you arrange an alternative repayment plan that could get you back on track.

Where do I go for help if I’m in financial difficulty?

If you are having financial difficulties or need to speak to someone regarding your financial situation before applying for a loan you can get free and confidential advice from MoneyHelper (formerly The Money Advice Service), National Debtline or debt charity StepChange.