Looking to borrow a larger sum of money? You may prefer to take out a secured loan. A secured loan, also known as a homeowner loan, is a type of loan that uses a valuable asset (usually your home) as security. As you’re putting your property (or other valuable asset) on the line, there’s less risk for the lender so you may be able to secure a bigger loan and lower interest rate.
While you may be able to access a more affordable loan with less interest to pay, you’ll need to keep in mind the risk that comes with a secured loan. If you struggle to keep up with your loan repayments, you could lose your property.
Secured loans work in a similar way to personal loans. You’ll be charged interest on the amount you borrow – usually at a fixed rate – and you’ll pay the same monthly repayment for the term or life of the loan until the debt is paid off in full.
A key difference is the interest rate you’ll pay on a secured loan is likely to be lower than for a personal (or unsecured) loan. This is because you’re being asked to put up security against your borrowing, so it is less risky for the lender. Most secured loans use your home as security, but in some cases, a valuable item such as a car or jewellery can be used. As long as you keep up with your monthly repayments (both on time and in full), you won’t lose the asset.
Secured loans are used for a variety of large purchases, including:
While you can take out a secured loan for various purposes, with MoneySuperMarket you can only use your loan for home improvements or to consolidate existing debts.
When applying for a secured loan, you’ll be asked what item of value you’d like to use as security (or collateral) for the loan. Here are some examples of what you could use to act as security for your loan:
When you compare loans with MoneySuperMarket, you’ll only be able to use your home as security for your loan.
What happens when you can’t pay back your secured loan will depend on the severity of your situation and how many repayments you miss. If you are struggling to meet one repayment, it’s best to contact your lender straightaway and explain your situation as soon as possible. Your lender may offer you breathing space, in the form of a payment holiday or reduced repayments – but this can vary depending on your situation so make sure you check with your lender.
If you struggle to repay your secured loan, you may be faced with a higher interest rate and late repayment fees, which will add to your overall debt. . If you miss several repayments (usually three to six) a default may be registered on your credit file which can affect your credit score.
The main risk or concern with secured loans is your property or valuable asset could be repossessed if you fall behind with your repayments. Your lender may force the sale of your home to recover the money you owe them – but this is usually a last resort.
As with any loan or borrowing, it’s important to make sure you can afford to pay it back before you apply.
When taking out a loan you’ll need to decide between a secured and unsecured loan. An unsecured loan, also known as a personal loan, will usually be available to those with a fair to good credit score. This is because the stronger your credit score, the more reliable you look to lenders, with less risk of you being unable to pay back the loan. An unsecured loan doesn’t require you to put up an asset as security for the loan.
In contrast, secured loans are linked to an asset that you’ll use as security for the loan – meaning if you struggle to repay, the lender may repossess your valuable item. Secured loans can often be used to borrow larger sums of money than unsecured loans because the lender will have the security of knowing they can reclaim the loan’s value if you fail to repay.
Struggling to decide between a secured or unsecured loan? Our guide on unsecured vs. secured loans can help you to compare.
Before you take out a secured loan, there are a few factors to consider:
The potential advantages of secured loans include:
Looking to borrow but unsure if a secured loan is right for you? There are alternatives to consider, including:
Taking out a loan can be a difficult process to navigate so we make comparing easy. Whether you’re after a secured loan or a personal loan, we’ll give you a tailored list of options to choose from - and searching won’t affect your credit rating.
Simply tell us a little about your financial situation and what kind of loan you’re looking for, including what you’ll be spending the funds on, and we’ll give you a list of competitive offers. Once you’ve decided, you can click through to the provider and get the process started.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.