Short term secured loans

A short term secured loan can give you the double benefit of lower rates and smaller interest payments.

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Tom Stelzer

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How short is a short term secured loan? Well, these types of loan are typically available with terms as short as 1 year. Because it’s “secured”, you’re putting an asset on the line (generally your home) as collateral that the lender can claim in the event that you don’t repay. Secured loans also take longer to arrange than unsecured loans – typically a few weeks rather than the few hours/days you might expect an unsecured loan to take.

There are some related products which let you borrow against the equity you have in your home for even shorter periods – like a bridging loan, which can be as short as a month, or a home equity line of credit (HELOC), which you can dip into as and when you choose for as long as you need.

There are of course also unsecured loan products with very short terms, but these offer smaller sums (a traditional bank loan typically maxes-out at £25,000, and even that will only available for customers with excellent credit and high incomes).

Is a short-term secured loan right for me?

To consider any form of secured loan, short-term or otherwise, you’ll need to be comfortable with the idea of putting your house on the line. To put that another way, you’ll need to be certain of your ability to repay.

Secured loans are repaid monthly, over a term ranging from 1-30 years. If, say, you’re buying a run-down property at auction and intend to develop it, but won’t have funds to make monthly repayments on a loan, then a traditional secured loan or mortgage might not be appropriate because it’s repaid monthly. You may wish to consider bridging finance, where interest is “rolled up” and repaid in one fell swoop with the capital at the end of the loan.

If you’re hoping to borrow for less than a year, it’s likely to be tough to find a secured loan provider offering this facility. You may wish to consider a home equity line of credit (HELOC), which is a bit like a credit card (not a 0% one, alas) in that you can borrow money as and when you need to and make overpayments to clear the debt as fast as you’re able. HELOCs are relatively common in other countries like the U.S. and Australia, but are rare over here.

If you don’t need to borrow tens of thousands, unsecured products should probably be your first port of call. Entering into any form of secured loan isn’t to be taken lightly… they’re lower risk for a lender, but higher risk for you, the borrower. There are also usually fairly significant fees involved. When you’re borrowing over 30 years, a 4-figure fee might seem less significant, but on a short loan, in addition to the interest, it’s likely to sting.

Next steps: comparing secured loans

It’s generally a smart idea to somebody and get personalised quotes and have your options explained. But if you’d rather just estimate secued loan costs based on today’s market rates, we offer a simple calculator for that too!

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Pros and cons of short term secured loans

Pros

  • Better rate. You'll generally get a lower interest rate on a secured loan than you would with an unsecured personal loan.
  • Lower cost. The shorter your loan term, the less you'll pay in overall interest. This means that a short term secured loan will cost less than the equivalent long term secured loan. Depending on how much you borrow, the difference could be hundreds or thousands of pounds.
  • You'll be out of debt more quickly. If you continue to make your monthly repayments, you can pay off the loan faster. This will also likely improve your credit score by demonstrating to lenders that you can handle debt, which means you may receive more favourable terms if you take out another loan in the future.

Cons

  • Higher repayments. As you'll have less time to pay off the loan amount, the size of your monthly repayments will be higher than they would be on a loan with a longer term. This may make it harder to afford the loan's cost.
  • Your equity is at risk. With a secured loan, the asset you use as collateral may be lost if you don't repay the loan on time.
  • Limited availability. To qualify for a short term secured loan, you'll need to have access to home equity (or another asset) that you're willing to use as security. If not, you won't be able to apply.
  • Fewer loan options. While most lenders offer unsecured personal loans, it's generally only specialist lenders that provide secured loans. This means you'll be limited in the loans you can apply for.

Can I get a short term secured loan with no credit check?

No. Before you’re approved for a secured loan, the lender needs to perform a credit check to determine the likelihood that you will repay your loan. However it’s worth noting that having security reduces some of the risk to the lender, and so your credit score may not be as big a factor as it is in unsecured lending (but it will be a factor).

Can I get approved if I have bad credit?

Yes, you can still get a secured short term loan with bad credit, though you’ll likely receive a less favourable rate and loan terms compared to someone with a good credit score.

What are my other short term loan options?

You may also want to consider an unsecured personal loan if you’re looking for a loan with shorter terms. You’ll likely receive a slightly higher rate than you would on a secured loan but do not need to risk an asset as security against the loan.

Bottom line

As with all secured loans, the asset you put up against the loan is at risk. Should you default on the loan, your asset, such as your house, would be repossessed. Whilst you may have a higher chance of getting a secured loan with bad credit, provided you can put up a suitable asset as collateral, you should only take one out if you’re sure you can make the repayments.

Frequently asked questions

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Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full bio

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