Compare secured loans for September 2023

If you need to borrow money to pay for extensive home renovations or consolidate existing debt, a secured loan could allow you to borrow a larger sum of money over a longer term compared to an unsecured loan. Here’s how they work.

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What are secured loans?

Secured loans (also known as homeowner loans or second-charge mortgages) allow you to use the equity in your home as security to borrow money. This means that if you’re unable to keep up with your loan repayments, the lender could repossess your home and sell it to recoup its money.

There’s a little extra admin involved with a secured loan as you’ll need to get your home valued, and the process can take a little longer than it would with an unsecured loan. But you’ll typically be able to borrow a larger sum (over £10,000) over a longer term (up to 25 years or more) and you’ll benefit from more competitive interest rates.

In figures from the Finance and Leasing Association, it’s possible to see the post-pandemic trends in homeowners taking out second charge mortgages. Some homeowners may be exploring secured loans at the moment as a way to improve their homes without disrupting their main (first charge) mortgage.

How do secured loans work?

A secured loan lets you borrow a lump sum of money which you then repay, plus interest, in monthly instalments over a set term. However, you’ll also need to offer up a personal asset as collateral. In theory that could be anything – a car, a boat, a priceless piece of art, etc. – but in reality it’s usually a property (and that’s what we focus on in this guide).

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 has what’s known as a “second charge” over it. In other words, that lender would be next in line (after the main mortgage provider) to recoup its losses from the sale of the property.

Whatever you use as security, it’s crucial that you’re aware it could be repossessed if you fall behind on your loan repayments. That’s why you’ll always see the standard “Your home is at risk if you do not keep up repayments…” warning on adverts for loans involving security.

How does the valuation process work?

When considering your secured loan application, the lender may want to carry out checks on the property and is likely to request a valuation. This will require a surveyor to visit the property and determine its value based on factors like its location, condition and quality, as well as current market conditions. This valuation may not match up with your own valuation of the property, or indeed the amount you paid to purchase the house.

Am I eligible for a secured loan?

To be eligible for a secured loan, you need to own your own home and you’ll need to own enough equity in your house to cover the cost of the loan. For example, if you wish to borrow £10,000, you’ll need to have at least £10,000 of equity in your house to use as security against the loan amount. Some lenders will require you to have more than this.

As with any other loan product in the UK, you’ll also need to meet the following criteria to be eligible for a secured loan:

• Be at least 18 years old
• Be a UK resident

Reasons for getting a secured loan: is a secured loan right for me?

You might want to take out a secured loan if you need to borrow a large sum of money – more than an unsecured loan can offer you. However, you’ll need to have a suitable asset to qualify and you’ll need to be sure you can afford to meet your loan repayments. If not, you risk losing that asset.

Some people choose to take out a secured loan rather than remortgage because their current mortgage has a very low fixed rate deal or because they would pay high early repayment charges to get out of their existing mortgage early. You might also prefer to avoid remortgaging if your credit rating has taken a hit since you took out the original mortgage.

What can you use a secured loan for?

Secured loans are perhaps most popular with those looking to consolidate debt. But they can also be a way to access funds to pay for extensive home improvements, for example, whether that’s an extension or loft conversion.

How much do secured loans cost?

How much your loan costs will depend on the amount you’re borrowing, the interest rate charged and the term over which you’re borrowing. Borrowing over a longer term can keep your monthly repayments down, but will also mean you pay more in interest, making it more expensive overall.

For example:

If you were borrowing £25,000 over a term of 25 years at an interest rate of 9.9%, you’d repay £225 a month, or £67,624 in total. That’s £42,624 in interest.

However, if you borrowed the same amount over 15 years at an interest rate of 9.9%, you’d pay slightly more per month at £267. But in total you’d pay £48,082, with £23,082 of that being interest.

Keep in mind that some secured loans will also charge arrangement fees, as well as valuation fees, so you’ll need to factor these in too.

What’s the difference between a secured and unsecured loan?

Both secured and unsecured loans let you borrow a lump sum of cash that’s repaid over a set term in monthly instalments, with interest added. But there are some key differences as the table below shows:

Types of secured loans

Some of the different types of secured loan are as follows:

• Mortgages. With a mortgage, the amount you want to borrow is secured against the property. You then make monthly repayments over a set term to pay back the amount borrowed, plus interest.
• Second charge mortgages. If you still have an existing mortgage, a second charge mortgage can be secured on any equity you have in your home. They can also be called homeowner loans.
• Bridging loans. This type of loan can be used to bridge the gap between buying a new property and selling an existing one.
• Car loans or logbook loans. You might also be able to borrow money against the value of your car.

How do secured loan repayments work?

Each loan repayment you make will be made up of a portion of capital (the amount borrowed) and some interest. If your interest rate is fixed, your monthly repayments will remain the same for the duration of the loan. But if it’s variable, your interest rate, and therefore your monthly loan repayments, could move up and down in line with movements in the Bank of England base rate.

Alternatives to homeowner loans

Depending on how much you need to borrow, some of the alternatives to secured loans include:

• Remortgaging. Rather than taking out a separate loan secured against your home, it might be better to remortgage, which means exiting your current mortgage, and taking out a new one with different terms. However, you’ll need to factor in whether you’d need to pay an early repayment charge to get out of your existing mortgage deal early, as well as how much interest your new mortgage would charge and whether your credit rating has deteriorated since you took out your original mortgage.
• A second mortgage from you current bank. While your mortgage issuer might not let you “top-up” your current mortgage, they might let you run a separate, second mortgage from them alongside it. But it’s worth comparing whatever deal they offer you against those from the specialist lenders above to make sure you get a good deal.
• A personal loan. If you don’t need to borrow as much as you can with a secured loan, an unsecured personal loan might be more suitable. You’ll usually need a good credit rating to get the best deals and you’ll typically need to repay your loan over a period of 1 to 7 years. But it’s a less risky way to borrow.
• Equity release. If you’re over 55 and a homeowner you may wish to consider exploring an equity release scheme, such as a lifetime mortgage, as a means to access the funds tied up in your house.
• A credit cards. This is a more flexible way to borrow, but you won’t be able to borrow as much as you can with a loan. However, credit cards can be a good option for spreading the cost of new purchases or consolidating existing debts, particularly if you can take advantage of a lengthy 0% offer.

How does a secured loan compare to remortgaging?

In some ways they are quite similar. Should you default on your loan, your home could be repossessed with either option. However, if you have sufficient equity in your home, remortgaging could give you access to a wider range of deals at lower interest rates.

Pros and cons of secured loans

What is a home equity line of credit (HELOC)?

A HELOC is a type of revolving credit that allows you to borrow against the equity in your home. If your application is successful, you’ll receive the funds as a line of credit. You can draw on these funds, up to your credit limit, over a set number of years, usually between 5 and 10. You’ll only ever pay interest on the amount you’ve borrowed, which means you won’t be charged interest on any funds left untouched.

How to compare secured loans

When comparing secured loans, keep the following factors in mind:

• Total cost. The most important factor to consider when comparing almost any loan is the total cost. The APRC (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. However, it’s better to look at the total cost which will show you exactly how much you’ll repay over the term of the loan.
• Fees. Also check how much you might be charged for arranging the loan, as well as whether there are any penalties for repaying the loan early.
• Length of term. 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.
• Eligibility. Before you apply check the lender’s minimum criteria, which could include factors like age, residency, employment and income.

What do I need for a secured loan?

To get a secured loan, you’ll need a suitable asset for the lender to use as security. This is often your home, but could be your car or a valuable piece of jewellery – its value needs to be enough to cover the loan amount.

You may also need to provide the following documents:

• Proof of ID such as a driving licence or passport
• Proof of address such as a utility bill
• Proof of employment and income
• Bank statements

How to apply for a secured loan

Once you’ve compared a range of lenders and found a secured loan that meets your needs, double check that you’re eligible and then make your application.

Depending on the lender, you can generally apply for a secured loan online or by phone, providing the details and documents mentioned above. Once you’ve applied for a secured loan, the lender will need to check your credit history and verify the ownership of your property, as well as its market value. This process generally takes a couple of weeks.

Once you’re approved for a loan, the lender will send any relevant documents you’ll need to sign. The lender will transfer the funds to you once it has received your signed documents.

What is APRC?

Like mortgages, some secured loans come with an introductory fixed-rate period – say, 3.5% for two years, which then reverts to a variable rate. This, combined with product fees, can make it hard to put two secured loans side-by-side and know which is the better deal.

The APRC (annual percentage rate of charge) is designed to offer consumers a benchmark annual cost over the lifetime of the loan, taking into account the interest rates and periods plus any fees involved.

Just to add an extra layer of complication, lenders normally tailor rates to the applicant. In other words, if they think you’re a higher risk, they might offer you a higher rate. A “representative” APRC is the APRC that at least 51% of customers are offered for a given product.

Another useful benchmark (and one that can be easier to get your head around) is the total cost of borrowing. This should be at, or near, the top of your list of factors for comparing homeowner loans.

Bottom line

Secured loans can enable you to borrow larger sums of money over a longer period of time. Because they are secured against an asset, they are less risky for the lender, which means they can be easier to get accepted for and interest rates can be more competitive.

However, secured loans are much higher risk for the borrower and should always be considered with care. If you cannot meet your repayments, you could lose your home, so always ensure your loan would be affordable.

Overview of secured loans

Overview of secured loans

Frequently asked questions

• How much can I borrow on a secured loan?

  This will depend on the specific lender, as well as your financial situation and credit history. Secured loans typically range from £10,000 to £100,000 and with unsecured loans the max amount you can borrow is normally up to £25,000.

• Who offers secured loans?

  Many leading lenders provide secured loans, but most are offered by specialist loan providers.

• Should I take out a fixed or variable secured loan?

  Choosing a loan with a fixed rate of interest can make it easier to budget as your interest rate, and therefore your monthly repayments, will remain the same for the duration of the loan. However, many secured loans only offer variable rates which means your rate, and monthly repayments, can go up or down in line with movements in the Bank of England base rate. This can work to your advantage when rates are going down, but not when they are going up.

• Can I take out multiple secured loans?

  In theory, you should be able to take out multiple secured loans, provided you have enough equity to cover each loan. However, once you’ve used a certain amount of home equity as security against one loan, you won’t be able to use the same equity as security against another loan.

• What can I spend a secured loan on?

  You can spend a secured loan on almost anything, but they are often used to consolidate debt, or pay for high-value items like home renovations.

• How long does it take to get a secured loan?

  You can get approved for a secured loan in a couple of days, but most applications will take a couple of weeks. The amount of time it takes to be approved will also vary between lenders.

• Are secured loans easy to get?

  Generally speaking, yes. Because you’re using an asset as security, the lender will view you as less of a risk and may be more willing to let you borrow. However, be aware that the process of getting a secured loan is more complicated than unsecured loans as your property or the asset you’re using as security needs to be valued.

• Do secured loans affect your credit score?

  Yes, any type of credit will affect your credit score. If you make all of your repayments in full and on time, your credit score can go up. On the other hand, if you don’t make your repayments on time, your credit score could go down.

• What credit score do you need for a secured loan?

  There’s no exact credit score that you need as it will depend on the lender. However, secured loans can be easier to get accepted for if your credit score is lower, so you won’t necessarily need a top-notch credit score.

• Can I get a secured loan against my car?

  Yes, it is possible to get a secured loan against your car, so long as you own the car outright. These are often known as logbook loans and they are available in England, Wales and Northern Ireland (not Scotland).

• What can you use as collateral for a secured loan?

  Many people use property as collateral for a secured loan, but you can also use vehicles, jewellery, art and antiques, or investment accounts, provided they are high enough in value.

• What do I do if I’m struggling to meet the repayments of my loan?

  Contact your lender and let it know as soon as possible. It may be possible to rearrange the terms of the loan to make it more affordable for you. It’s also worth contacting a debt advice agency such as Citizens Advice or StepChange to seek additional help.

• What do I do if I’m denied a secured loan?

  If you’re denied a secured loan, consider using a loan matching service – this can check your eligibility with a whole panel of lenders in one fell-swoop, without hurting your credit score. You’re within your rights to make multiple loan applications, but be aware that this will have a negative impact on your credit score and could put lenders off.

• How do I get in touch with Loans Warehouse?

  If you have any issues or queries, you can ring Loans Warehouse customer service on 01923 660218.