> Secured Loan - UK Guide
In a nutshell
A loan that is secured against property you own such as your home or your car.
Best Loan for
People looking for reduced interest rates.
You can borrow anything between a few hundred pounds up to £100,000+ for a secured loan - what you actually borrow will depend on what you want, your lender's loan amount rules and the type of loan you're taking out. It's likely that any lender will look at your incomings and, perhaps, your spending before they make a decision. Chances are you won't be credit checked for a secured loan as you are less of a risk with collateral behind you.
Typical loan periods can run between 1-25 years depending on the amount you want to borrow, your lender and the type of loan you choose.
If you take out a secured loan then you will agree to use your property as collateral. This makes you less of a default risk to your lender and they therefore offer much lower rates for secured loans than for unsecured ones.
It is also easier to get a secured loan and this option is more likely to be open to people with bad credit histories as well - you may also find that you can borrow higher sums more easily with this type of loan. Some people may also make specific cost savings on fees by tying their loan directly into their existing mortgage.
What to look out for
The biggest drawback to a secured loan is the fact that you are using your home to help you get better rates. This is fine if you keep making your loan repayments. But if something untoward happens or you find yourself unable to manage financially, then your lender has every right to take the property that you used as your collateral. In the worst case scenario this can lead to the repossession of your home. Many people take out payment protection policies to protect their repayments - but this will add to your overall costs. Many people run into problems with secured loans because they borrow too much simply because it's available to them. But, with many secured loans directly linked into your mortgage, this can mean that you'll be paying back more than you need over longer terms. This may keep your monthly payments low but it will add up to higher costs in the long run. Also, some people use a secured loan to consolidate their debts which can be very risky - if you have financial problems then you may well find that the extra payments for a secured loan could prove to be too much. Again, this could lead to you losing your home. You may also find that it takes longer to arrange a secured loan - you will need to have your property valued in most cases and the paperwork is more complex. Some terms and conditions for secured loans aren't as good as they could be. For example, you may want to make higher payments every now and then because you have a little spare cash - your lender may not let you do this. You may also decide to repay your loan early - you can do this, but you might be charged a high penalty fee to do so.
If the benefits of a secured loan aren't vital to you and you're worried about using your property as collateral, then you could look at an unsecured option instead. Alternative products include specialist equity release loans and flexible loans.