What is a Secured Loan?

A secured loan means that your loan is “secured” against something valuable during the loan term. The most common types are mortgages which are secured against your home. You can often borrow much larger amounts, leveraging the value of your prized asset and receive money upfront. Importantly though, if you cannot keep up with your loan repayments, your asset can be repossessed by the lender.

Secured Loans vs Unsecured Loans

The opposite of secured loans is unsecured loans, where your loan is not secured against anything. Instead, the amount you can borrow is based on your income, affordability and credit score. If you cannot repay your loan on time, there is nothing physical that can be repossessed, but it will impact your credit score and there may be added fees.

Types of Secured Loans

There are various different types of secured loans, many of which you will be aware of, though you may not have considered the fact that they fall under that category! We’ve listed some of the most common types of secured loans below:

Mortgages

This is the most common type of loan in the UK and involves securing your loan against your home. The amount you can borrow is calculated by loan-to-value (LTV). Most lenders allow you to borrow up to 70-80% of the property value, so this would be a mortgage with a 70% or 80% LTV and you will be required to pay the remaining amount in the form of a deposit. Mortgages come in different forms including interest only, fixed, tracker and offset mortgage. It’s also important to bear in mind that your home can be at risk if you do not keep up with repayments.

Second Charge Mortgages

This is an additional loan on your existing mortgage, also known as a second charge loan. You will have the main mortgage for your home (this is your first charge) and if you want an additional loan on your mortgage, it is known as a second charge, because it is the second amount that is charged.

The amount you can borrow on your second charge mortgage is less than the original mortgage and you will usually need a bit of equity in your home (having paid off some of your mortgage). It is commonly used to raise funds for things like home improvements, weddings and debt consolidation.

Car Loans

You can borrow money by securing the loan against your vehicle. If you apply for car finance, you will be able to start using the car right away and make monthly payments towards owning it outright. If you fall behind on repayments, your car could be repossessed by the car finance provider.

With logbook loans, you can secure the loan against your car, bike or van and transfer your V5 document, known as your logbook, to the lender during the loan term. With a logbook loan, you would need to own your car outright. The car typically needs to be less than 5 years old, and you can borrow up to 80% of the car’s value (with a maximum of £5,000 over 3 years).

Debt Consolidation Loans

This is used to consolidate all your existing debts into one single affordable monthly loan. A debt consolidation loan is an effective way to organise your finances and eventually become debt free. Many households prefer the option to make one single repayment each month, rather than paying off multiple debtors and trying to keep on top of it. To access the funds upfront, the loan can be secured against your home or car, or you have the option for this to be unsecured too. You can also borrow a few thousand pounds, depending on the lender.

Bridging Loans

This type of property loan is used to bridge the gap between moving and purchasing a new property. It is used by thousands of households each year who need to buy a property but have not yet sold their own home yet.

In addition, it is used by many property developers and investors looking to buy properties whilst avoiding traditional property chains and the long winded mortgage application process. Bridging loans come with greater risks, since you could lose your home if you do not repay in 12 months. The amount you can borrow will depend on your credit history and salary.

Collateral Loans

Collateral loans involve taking anything valuable that can be used as collateral and securing your loan against it, including art, watches, jewellery, memorabilia and more. You will typically have the collateral valued impartially beforehand and receive up to 80% of its value upfront. However, you can risk losing this pricey item if you do not keep up with your repayments.

Are There Credit Checks With a Secured Loan?

Depending on the secured lender, some will not carry out credit checks, instead using only the value of your asset or vehicle to make a decision. However, most secured loans companies will carry out a basic credit check and require you to be employed and have a regular income to be eligible to apply for a secured loan.

Can I Get a Secured Loan With Bad Credit?

Yes, a lot of secured loans are well suited for bad credit, allowing you to maximise the value of a prized asset in order to get accepted for a loan. So even if you have poor credit or have missed the odd repayment, if you have a home, car or something of value, this can be used to borrow money.

However, you must be aware that if you cannot keep up with repayments and have tried all other options, the lender can repossess your asset in order to recover the money that they have lent to you. For this reason, a lot of people choose to take out unsecured loans instead.