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Putting up your possessions or property as collateral for a loan can potentially improve your chances of being approved, and increase the amount you can borrow. These type of loans are known as secured loans, as they’re secured against your assets - often your home or a vehicle. If you fail to make the monthly repayments on the loan, your possessions can be claimed by the lender.
Secured loans can be risky. But if you borrow responsibly and make the repayments reliably, they can be a good credit option, especially for people who have poor credit history and may struggle to obtain other types of finance.
To find the secured loan product with the best interest rates and terms, it pays to shop around, comparing personalised loan offers through a comparison site.
Secured loans are a form of borrowing in which you put an asset, often your home but also vehicles or other valuables like jewellery, up as collateral. Failure to make monthly repayments entitles the lender to seize this asset.
To find the most competitive secured loan, you should try to compare as many offers from lenders as possible. Our loan comparison engine makes this process easy. Input information about yourself, your financial circumstances, how much you’d like to borrow and for how long and for what purpose, and you’ll receive a list of personalised loan offers from a range of providers.
Our comparison engine, powered by Monevo, uses a soft eligibility checker, which won’t leave a trace on your credit report. It’s free to use, confidential and secure, and you’re under no obligation to proceed once you see the loan offers.
Unsecured loans are much safer than secured loans, so why might you want to take on secured debt?
Putting up assets as collateral increases the risk of the loan for you but reduces it for the lender, making you more likely to be accepted. This makes them a good option for people with poor credit scores who might otherwise struggle to find credit.
You may also be able to obtain lower interest rates on secured loans than unsecured loans. Be aware that some secured loans come with variable interest rates, however, which means your interest rate will fluctuate with the wider market and your payments can change—up or down. Make sure your monthly payments are manageable and you have enough money in your budget in case they increase.
Unsecured loans are usually used to borrow large sums of money, typically more than £10,000. While you can usually only borrow £25,000 with unsecured loans, you can stretch this to £75,000 with a secured loan, when using your home as collateral. Conversely, you generally can’t borrow less than £3,000, so secured loans aren’t a good option if you’re just trying to fund a small one-off purchase or meet expenses in the event of an emergency.
The amount you personally can borrow and at what rates will depend on the following factors:
You can also borrow over a longer period of time than with an unsecured loan. While unsecured personal loans typically last for one to five years, secured loans usually have terms from five to 20 years. A long loan term will mean lower monthly payments. However, the total amount of interest you pay over the lifetime of the loan will be significantly higher the longer the term. Additionally, you may be stuck making monthly payments on the loan for years or even decades. Most secured loans prohibit early repayment.
Secured loans are a risky type of borrowing and should be used with caution. They’re best used to consolidate existing debt or for large home improvement projects.
Most secured loans are secured against a home, so they’re often called homeowner’s loans. But there are other types of secured borrowing available for those who don’t own property.
the most common type of secured loan, with your home as collateral. The amount you can borrow will depend on the amount of equity you have in the home.
Mortgages are a type of secured borrowing, secured against the home you’re paying off. Fail to make mortgage payments will lead to the repossession of the property by the lender. You may wish to remortgage your home for a higher amount if you need funds, especially for a home renovation, before you opt for a homeowner’s loan.
Similarly, vehicle loans are a type of secured borrowing, secured against the car you’re paying off. They’re distinct from logbook loans because the loan you’re paying off is for the purchase of the vehicle. As with a mortgage, you aren’t simply handed over funds.
Pawnbrokers issue short-term secured loans, placing a temporary loan on a possession the borrower surrenders. Common items used as collateral on pawnbroker loans include jewellery, electronics, tools, and musical instruments. The amount you can borrow will depend on the value of the item, which will take into account the its age, condition, and current consumer demand for it. If you don’t repay the loan plus interest during a designated time period, the pawnbroker will take ownership of the item and sell it.
Still got questions about unsecured loans? You'll find answers to some common queries below:
Fail to make payments on your secured loan and you can lose your home, vehicle, or any other asset you put up. But fortunately it’s not a simple process: one missed payment won’t see you turned out onto the street—at least not immediately. Lenders ultimately don’t want to repossess the property. It’s more profitable and less of a hassle for them to simply have the loan repaid.
If you’re struggling to make payments, contact the lender as soon as possible, ideally before missing one. You may be able to negotiate with them to arrive at a new repayment plan.
Failure to make one payment will have a negative effect on your credit score, impacting your ability to obtain cheap credit in the future. Consistent failure to make repayments and to keep to a new repayment schedule will usually send your lender to court to obtain a repossession order.
This will depend on the lender – some will allow you to make overpayments and pay the loan off early, and others will charge an early redemption fee.
Before you choose a secured loan and put your assets on the line, consider one of the following other options:
*If a lender has pre-approved for a loan product this means they have conducted a soft search of your credit file and there is a good chance they will lend to you. Pre-approval does not guarantee you a loan. All loans are subject to lender and provider requirements and approval.
** Consolidating existing debts may involve repaying a higher rate of interest or charges, or increase the duration of repayment.
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Last reviewed: 19 November 2020
Next review: 19 December 2020