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Loan rates are based on your circumstances and change regularly

Finding a loan can be difficult, particularly when you have a less-than-perfect credit score. If you own valuable assets like a house or car, a secured loan may be an alternative if you can’t get a personal loan. However, it is important to understand the risks when taking out a secured loan: If you fail to keep up with the repayments, the lender could seize your asset.

Secured loans use your asset as security, making them a common option for people who need a substantial sum of money but who have a low credit score. 

Basically, showing a lender that you’re prepared to put valuable possessions on the line, you tell them how serious you are about paying them back for the loan. You may even find you are offered a better rate of interest than with an unsecured loan for this very reason. 

While they ultimately both end up with you borrowing money from a lender, there are a few fundamental differences between secured and unsecured loans:

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Secured loans

Tied to collateral: You may lose your home if you don’t keep up repayments

A bigger loan: Secured loans may help you secure a larger sum than personal loans

Better rates: Lenders sometimes  feel able to offer better APR on secured loans

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Unsecured loans

Consequences: Defaulting will hit your credit score, but you won’t lose your home

Your credit score: Your credit score will help decide the terms and APR you’re offered

Variable rates: There’s a much wider variety of APR on the unsecured loan market

There are various types of secured loan available, most of which are offered by MoneySuperMarket. You can choose from the following:

Homeowner loans

Also known as home equity loans, these let you borrow money against the current value of your home

Bridging loans

Short-term, high-interest loans designed to finish the purchase of a new property before you’ve sold your current home

Debt consolidation loans

This type of loan bundles up all your other debts into one monthly repayment. Some larger loans can be secured

Secured loans are a much riskier proposition than personal loans, both for the borrower and the lender, and you should always think carefully before you take one out. Here’s what you should consider:

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Can you afford it?

Secured loans tend to be for much larger sums than other loans, which means you pay more interest. Are you sure you can make repayments every month?

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There are consequences

Lenders want a security because they’d otherwise lose a lot of money if you default on your loan. That means your house and car could be repossessed

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Your credit score is important

The terms and interest the lender offers you will be informed by your credit score – and you’ll probably get a better deal with a higher rating

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Other factors lenders consider

Lenders will take other factors into account too, including your income, how much equity you have in your home, and any existing loans you have

Find the right loan for you and see which rates you’ll be guaranteed to get.

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Are secured loans easier to get?

Secured loans can be easier for people with lower credit scores to get. Certain loan providers will be more inclined to lend money to someone with bad credit if they’re putting up a security. 

What credit score is needed for a secured loan?

That depends on the provider, but while lenders might be prepared to offer secured loans to a wider range of customers, it is definitely possible to have a credit score that’s so low you won’t be considered for this kind of loan. If you’re at that stage, you should seriously reconsider borrowing any more money.

How do you get a secured loan?

You get a secured loan in the same way as other loans: by making an application to a loan provider. This will require you to provide some details about yourself and your finances. If you’re approved, you should receive the money in a few days

Do secured loans help your credit score?

If you take out a secured loan and manage to meet all of your monthly repayments in full and on time, you might see your credit score improve over the course of several months. 

A secured loan isn’t necessarily the best way to improve your credit score however. Consider a credit-builder credit card if that’s your goal.

Can I pay off a secured loan early?

This depends on the provider. Some lenders allow people to pay their loans off early, which can help reduce your total interest bill, but other lenders will charge you if you try.

Is it better to get a secured or unsecured loan?

An unsecured loan is certainly a less risky proposition than a secured loan as there’s no collateral on a standard personal loan. However, if you need a substantial sum of money and you’re certain you will be able to make your repayments, a secured loan might be more suitable.

Of course, you should consider the APR you are offered by your lenders as well: a secured loan with a lower APR might be a better bet than an unsecured loan with a high APR.

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