Secured Loans UK
What is a Secured Loan?
As with other types of loans, with a secured loan you will make set monthly repayments against the total you have borrowed, plus interest at the agreed rate.
The interest rate is calculated as a percentage of the amount you owe. This rate may be fixed or variable depending on what you have chosen as your financial product. If you continue to make the full monthly repayments when they are due, you won’t lose the asset you are using as collateral.
Secured loans are sometimes referred to as homeowner loans as the most common type is those secured against property.
Therefore, they give you a way to borrow large sums of money using the equity of your home as collateral against your repayments. It’s important that you recognise that your property has the chance of be repossessed if you fall into arrears.
There are other types of secured loans, such as second mortgages or those that allow you to use your car (logbook loans) or another asset as security.
How secured loans work
Secured loans tend to be a lot more complex than other types of loans making it important to do your homework before deciding to apply for one.
Secured loans are usually for sums over £25,000. They usually come with lower rates than personal loans but are usually repaid over a longer period – sometimes up to 25 years – so can cost you far more in interest over the term. Our secured loan calculator will make the budgeting process more manageable.
The rate is not always fixed meaning you risk substantial hikes in future, though you may also benefit from a drop in costs.
What can a secured loan be used for?
A secured loan enables homeowners to use their property equity as a means to borrow money from the lender. This might be for:
- a major home improvement project such as an extension
- extra funds to buy a second property
- university fees
- funding if poor credit means it’ll be difficult to get a personal loan
What documents do I need for a secured loan?
It depends on your individual circumstances but most likely you will need:
- Your application form
- Bank statements
- Proof of income and expenditure
It’s important that you provide all of the documents your lender requires as quickly as you can. The application process for your secured loan will slow down if you do not have everything ready.
Secured Loans – the benefits
A secured loan can be a great option if you need to consolidate debts from credit cards, overdrafts or unsecured loans with higher interest rates.
Be mindful that using a secured loan to pay off smaller unsecured debts may end up being more costly, once the interest is calculated. You also add more risk by converting unsecured credit into secured credit because your asset property can be repossessed if you fail to make your repayments. .
Some of the benefits of getting a secured loan include:
- getting a relatively low rate of interest
- being able to borrow a larger sum
- borrowing ability without a high credit rating
- you get a get a longer repayment term, although you could pay more in interest over the term
Secured Loans – the risks
- If you miss repayments, you could lose your home. ?Make sure you understand the risks, as some lenders may act quickly to get their money back if you miss payments.
- Repayments could increase if your loan has a variable rate.? Most secured loans have variable rates, which means that if the Bank of England raises the base interest rate, your rate will probably increase too. Consider if you’d still be able to afford the loan if this were to happen. Unsecured loans are usually fixed-rate loans? that give you the security of always knowing what you’ll pay each month.
- Arrangement fees ?and other associated charges can be high.
Remember to look at the total amount repayable, as well as the headline APRC (Annual Percentage Rate of Charge). The APRC is the rate of interest, taking into account all fees, costs and any introductory rates on a mortgage or a secured loan. It can be helpful to look at the APRC when comparing the cost of loans.
Are Car Loans considered secured or unsecured loans?
Loans for cars are considered secured loans, as the vehicles are used as collateral in securing the loan. Failure to repay the secured loan can result in the vehicle being repossessed by the lender, just like your home would be if you were using your home as collateral. You can find out more about car finance options here.
Credit cards, student loans, and personal loans are all examples of unsecured loans. If you default on an unsecured loan, the lender may instruct a collection agency to collect the debt or take the borrower to court.
Can I get a secured loan?
If you can’t get access to a personal loan, or a high enough limit on a credit card then a secured loan might be useful.
Secured loans are secured against an asset known as your ‘collateral’. This could be your car or something else valuable, but it’s often the value in your home.
How to get a secured loan with bad credit
Some lenders offer loans to those with patchy or poor credit histories but you usually pay far more in interest for the privilege. Our loan calculator can take this into account. Click here to find out what your best options are.
What is an APR on a secured loan?
One of the most important – and most confusing – pieces of financial jargon to learn is APR. APR stands for Annual Percentage Rate. When you borrow money, the APR is the amount of interest you pay on the outstanding debt per year, plus standard fees and charges like an annual fee if one is charged.
As all lenders must tell you what their APR is before you sign a credit agreement, it’s designed to show you how much your loan repayments are likely to be.
The APR is different from the interest rate. The interest rate is just the interest on the loan. The APR is more useful because it includes any extra fees or charges that get added.
Your APR gives you a better idea of how much you’ll have to repay for the total cost of the loan. Have you noticed that you nearly always see the word “representative” before the word APR? Representative APR tells you what APR most people can expect to get – by ‘most people’, we mean 51% of people. The remaining 49% either get a higher APR or their applications are rejected. Never base your personal loan budgeting on the representative APR, wait and see what is the APR the lender offers you!
The representative APR (i.e. annual percentage rate) is the rate that at least 51% of borrowers will be charged; the actual rate your lender offers you could be higher, depending on your credit score. This means that the monthly repayment and total amount repayable listed on any personal loan example should only be used as an indication of what you will be asked to pay back.