Secured loans require the lender to have a high-value asset to secure the loan against. This loan type is sometimes referred to as a ‘homeowner loan’, as property is often used as security. If you are not a homeowner, you may also be able to secure the loan against your car if you own it outright. The most important thing to know about secured loans is that the secured asset, often known as collateral, can be repossessed if you fail to make repayments.

So, the security in this loan type refers to the reassurance your lender has, not you as the borrower. The secured asset makes the loan agreement less risky for the lender as it can be repossessed to recuperate their losses. This allows lenders the confidence to lend larger sums of money and at more favourable interest rates.

• Higher borrowing limits

  As the lender secures the loan against your home the loan terms are deemed less risky. This means lenders are more likely to offer higher borrowing limits, depending on how much of your home you already own. Many lenders may request information around what you plan to do with the loan, making it a good option for home improvements.+

• Longer lending terms

  Similarly, the lenders may offer secured loans over a longer lending term when compared with unsecured loans. This can make it advantageous as you can spread repayments over a longer period.

• More favourable interest rates

  Compared to unsecured loans, a secured loan is seen as less risky for the lender, meaning you are more likely to be offered a favourable interest rate.

• Availability for those with recovering credit history

  If you have a poor credit score, finding an unsecured loan could be challenging. This is because you are deemed high risk and may not be able to make repayments. A secured loan gives the lender reassurance, therefore making the loan less risky for them.

• More likely to be accepted

  When weighing up secured vs unsecured loans, you’re more likely to have your application accepted. The security is the key deciding factor for lenders when it comes to reviewing your secured loan application.

• Potential loss of property or secured asset

  If you have secured your loan against your property you risk this being repossessed if you don’t keep up with repayments. Remember, a secured loan offers security for the lender, not for you borrowing the finance. Carefully consider the affordability of long-term secured loan repayments as the significant risk of losing your home is a possibility.

• Early repayment charges

  Some lenders request that you pay an early repayment charge if you choose to pay off the remainder of your owed debt before the loan agreement has officially ended. If there is an early repayment charge, this may be a flat amount or a percentage of what you had remaining to pay. Read your loan agreement carefully, as this will state if you must pay an early repayment charge.

• Long repayment terms and high interest

  If you take out a secured loan over a long time, the amount of interest you pay may cost more than other types of loans. While you’re more likely to find secured loans for bad credit, unsecured loans may be a more manageable solution when you compare interest rates.

Weighing up your available options is a crucial step to finding the best loan for your circumstances. With so many deals available, it would be overwhelming to compare them all yourself. That’s why applying for a secured loan is an advised process. You will need to speak with a broker or financial adviser to get a secured loan. During the application, you will work alongside an adviser to discuss:

• Your financial circumstances
• Reasons for loan application
• Affordability
• The exact terms and risks of the loan

Norton Finance specialise in helping applicants navigate the application for a secured loan. We’ll thoroughly analyse your current financial situation, discuss risks and open an honest discussion around affordability. If there is an alternative available which is less risky, our advisers will help you find your best option.

For any questions about the application or to request a quote, please contact us on 0800 694 5566 or fill out our secured loan online application form.

Your loan-to-value ratio (LTV) refers to the difference in how much you are borrowing in comparison to how much you own of your property. Calculating your LTV is not only a determining factor for your primary mortgage on your property. Lenders also consider your LTV for secured loan applications, as the amount of equity you have in your property already affects the amount a lender is willing to offer. The lower your LTV, the lower the risk for the lender, so you’ll be able to access higher sums for your secured loan.

Assessing the affordability of regular repayments is a fundamental part of managing your finances with long term debt repayments. With secured loans, the risk of losing your home is substantial if you cannot keep up with the repayment schedule. Ensure that you can put aside sufficient funds to keep up with the repayments for the entirety of your repayment term. With money-saving tips and careful budgeting of expenses like food and bills, you avoid the risk of missing repayments and potentially losing your home.

Secured loans will either offer fixed or variable interest rates. A variable rate can change over time, meaning your payments may go up or down, whereas a fixed rate will remain the same. Most lenders offer a fixed rate, but you may have the option to choose. If so, consider the affordability of the loan on a long-term basis, especially when variable interest rates may change. If the interest rate increases during your repayment term and you can’t keep up with repayments, you could lose your home.

Secured loans are a good fit for those who are wanting to borrow larger sums of money, exceeding £25,000. Carefully consider your options when deciding which loan type is best for your requirements.

There are many types of secured loans available. While the purpose may differ, the risk of losing your property remains if you can’t keep up with repayments.

For information on loan types, credit scores and more, explore our Know How blog section.