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A secured loan is money you borrow using an asset as security, typically your home. By putting down a valuable asset, there is less risk to the providers, which means you can often borrow more at a lower interest rate.

However, if you’re unable to keep up with your secured loan repayments, your property will be at risk. If the worst happens, your lender could sell your home to recoup the money you borrowed.

For this reason, it’s really important to be fully aware of the risks before you take out a loan secured against property. You can get a quote from one of our expert advisors and talk through your secured loan options.

Secured loans work in much the same way as any other loan. A loan provider will lend you money if your application is successful, and you will need to repay it over a set period of time, with interest added on top. 

The application process for a secured loan can be slightly more complicated because the lender may want to value your property. They need to understand how much equity you hold in the property to work out how much they can lend you.

How much you can borrow will depend on how much equity you have in your property. You can find out how much equity you have by calculating the difference between the value of your home and your outstanding mortgage balance.

There needs to be enough equity in your property to cover the loan amount you want. For this reason, it can be possible to get a secured loan of £100,000 or more, as long as you have the equity to cover it and can afford the repayments.

Most lenders will only lend up to a certain percentage of your equity. This is to reduce the risk of you going into negative equity - where the amount you owe is more than the value of your home.

You will typically need to provide proof of your income, home ownership, and affordability, including:

• Proof of ID, like a passport or driver’s license

• Proof of address

• Proof of employment status and income

• Poof of home ownership documents

• Three months of bank statements

The lender will also carry out a check on your credit record, so it’s worth looking at this before you start your application. Having several checks on your record can have a negative impact on your credit score.

There are several different types of secured loans available, and which one is right for you will depend on why you need the money and your financial situation. Here are the main types of secured loans:

• Homeowner loan: This is specifically a secured loan that uses your home as security. Your home is at risk if you don’t keep up with the repayments.

• Logbook loan: This loan uses your car as security rather than your home. They are less common and can be used for relatively small loans.

• Second-charge mortgage: This is another mortgage on your property that uses the equity in your property as security.

• Debt consolidation loan: You use this type of secured loan to pay off your existing debt, so you only have one repayment to make at a lower rate.

• Bridging loan: This type of loan is used to buy a new property before you’ve sold your existing property and uses your home as collateral.

There are also different interest options you can choose from, including:

• Fixed term: The interest rate you pay will stay the same for the lifetime of the loan, so your repayments will remain the same.

• Short-term fixed term: Your rate will be fixed for a limited time, usually between one and five years. After that, you will pay the lender’s variable rate, which is generally more expensive.

• Variable rate: The interest rate will change in line with the Bank of England base rate. This means your repayments could go up or down at any time.

If you want to borrow a large amount of money, for example, more than £25,000, there aren’t many options other than a loan secured against your property.

If you want to borrow a smaller amount, then it’s worth looking at different options, including:

• An unsecured loan

• A credit card - look for 0% purchase options

• Extending your overdraft, although this can come with fees

• A guarantor loan where somebody else agrees to cover your debt if you can’t make the repayments

Yes, you can be turned down for a secured loan. Lenders may deny your application if you don’t meet certain criteria or prove that you can afford to keep up with the repayments.

Some of the main reasons you might be refused a secured loan are:

• Poor credit score

• Not enough equity in your home

• Insufficient income

• Too much debt

A secured loan can affect your mortgage application. Having extra debt attached to your property will impact your affordability and mean you have less equity. 

While some lenders will accept secured loans when assessing your ability to take on a mortgage, most lenders consider the total amount you have borrowed before granting you a mortgage. 

By taking on additional secured loan debt, you may exceed the lender’s maximum allowed debt.

You can get a secured loan for bad credit - in fact, it can be easier to get than a personal unsecured loan.  

Lenders are usually reluctant to lend to borrowers with bad credit because they’re more likely to fall behind on their payments. However, this risk is reduced with a secured loan because your property is being used as security. 

That means that, even if you do struggle to pay back the loan, the lender knows that they can get their money back by repossessing your home if necessary.

The cost of a secured loan depends on a range of factors, including:

• The interest rate you’re offered

• The size of your loan

• The term of your loan

• Any fees

The main cost will be the interest rate. This will vary from lender to lender and can be influenced by things like your credit score and how much equity you have in your property. 

There may be arrangement fees for setting up your secured loan, and some lenders charge a valuation fee if they need to carry one out.