Compare secured/homeowner loans
With a secured loan, you'll put forward a personal asset (usually a property) as collateral. By reducing the risk to the lender, you could access a wider range of deals than you'd get without it.
Securing a loan against a property could help you access larger sums or better rates. For lenders, having security reduces the level of risk they’re exposed to, making them potentially more willing to consider lending to lower credit profiles.
Loans secured against a property (also known as home equity loans) are generally for amounts over £10,000. There’s a little extra admin involved for both the borrower and the lender (like verifying the value of the property and the extent of any other borrowing secured against it) which can eat into lenders’ margins, making smaller loans less appealing. This can also mean that the process takes a little longer than an unsecured loan – perhaps a few weeks rather than a few days. But since there usually aren’t solicitors involved, it’s still typically faster than a traditional mortgage would be (no offence, solicitors).
Here we’ll explain exactly what a secured loan is and how to find the right deal for your needs.
Warning: late repayments can cause you serious money problems. See our debt help guides.
What is a secured loan?
With a secured loan, you put up a personal asset as collateral – it could be a car, a boat, a collection of Star Wars memorabilia… but most commonly it’s a property. If there’s already a mortgage on that property (which in itself is probably the most common form of secured lending), then an additional loan against the property is known as a second charge.
Whatever the asset is, it stands to be repossessed if you fall behind on the loan repayments – that’s why you’ll always see/hear/read the standard “Your home is at risk if you do not keep up repayments…” warning on adverts for loans involving security. Repossessed assets are then usually sold off by the lender, enabling them to recoup their losses. If there’s any money left over once the lenders expenses have been covered, it’ll be returned to the borrower. Needless to say, as well as putting your home at risk, defaulting on a secured loan will hurt your credit score pretty badly – making it harder and more expensive to get loans in the future.
When you’re comparing loans, you might see the term “homeowner loan” cropping up, but it can be misleading. Some types of loan can be cheaper if the borrower is a homeowner, but that doesn’t necessarily mean that the loan is secured against the home. Before you take out any loan, make sure you understand what security’s involved. In this guide, we’re focusing on loans that are secured against your house.
Secured loans are perhaps most popular with those looking to consolidate debt, but can also be a way to access funds without disrupting an existing mortgage – perhaps for people enjoying a very low fixed rate or people whose credit rating has been severely damaged since taking out their mortgage.
The big banks don’t dominate the secured loans market (perhaps because they’re more interested in larger, traditional mortgages), instead you’ll see a large number of specialist lenders that are less likely to be household names – Optimum Credit is perhaps the largest of these.
How to compare homeowner loans
Here are some of the key factors to bear in mind:
- Total cost. The most important factor to consider when comparing almost any loan is the total cost. The APR (which all lenders must calculate in the same way) is a good benchmark for what a loan will cost you each year – taking into account both interest and any mandatory fees, but the overall cost is an even better metric. That’s because if you borrow at a low interest rate, but you borrow for a long time, it can still work out very expensive. Don’t forget, however, that interest rates change over time, unless they’re “fixed”. As such, if your loan is based on a “variable” rate (which is normal for longer-term loans), the overall cost is subject to change.
- Amounts and terms available. The longer the term length, the lower your monthly repayments will be. However, the total cost of your loan will be more as you’re paying interest for longer. Choose the shortest term length you can, with monthly repayments that are affordable for you. Most lenders offer terms of up to 25 years, although some will stretch to 30 years.
- Flexibility. Can you repay the loan early? Is there a penalty for doing so? Will it save you money in interest? Each lender will have it’s own policy covering facilities like early repayment and even repayment holidays.
- Eligibility. Before you apply check the lender’s minimum criteria, which could include factors like age, residency, employment and income.
Alternatives to secured loans
For a large loan, you’ll generally need to provide security in the form of a valuable asset. But if you’re looking to improve your odds of being approved for a good deal on a smaller loan and don’t want to put assets up as collateral, then options to consider include:
- Guarantor loans. With guarantor loans, you must find an individual who agrees to take on your debts if you can’t repay them on your own. This added security make lenders feel more comfortable approving less creditworthy borrowers.
Guarantor personal loans
- Credit cards. Each provider will have different lending criteria for each card. You may find you have more luck being approved for a small loan on a credit card.
Credit-builder credit cards
- Unsecured personal loans. To get good rates on an unsecured personal loan without a guarantor, you’ll usually need good credit.
Unsecured personal loans
Secured loans can be a useful option when you need to borrow larger sums in a relatively short space of time. They give lenders the reassurance needed to approve larger loans and loans to people with less-than-perfect credit ratings. Before applying for a secured loan, consider whether you’re willing to take the risk of having your assets repossessed.
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