What is a Secured Loan, and How Does It Work?
A secured loan is a type of borrowing that requires an asset—typically your home—as collateral. Other valuable assets, such as vehicles or high-value possessions, can sometimes be used as security. Because the lender has collateral, secured loans generally have lower interest rates than unsecured loans. However, there is a risk: failure to repay the loan could lead to the repossession of the secured asset.
How Much Can You Borrow with a Secured Loan?
Secured loans are often used for borrowing larger sums of money. While unsecured loans typically cap at around £25,000, secured loans can provide access to significantly higher amounts—sometimes up to £500,000, depending on your circumstances and the equity available in your property.
Additionally, secured loans usually offer longer repayment terms, often up to 25 or 30 years. While spreading payments over a longer period can reduce monthly costs, it also increases the total interest paid over the life of the loan.
Eligibility Criteria for a Secured Loan
Lender criteria vary, but typically you must:
- Own a property (either outright or with a mortgage)
- Have sufficient equity in your home
- Undergo a credit check to assess affordability and repayment ability
One key benefit of secured loans is that they are often more accessible to individuals with less-than-perfect credit. Since the loan is backed by property, lenders may be more flexible than unsecured borrowing.
Will a Secured Loan Affect Your Credit Score?
When managed responsibly, a secured loan can positively impact your credit score. Making timely repayments can demonstrate reliability to credit agencies, potentially improving your credit profile. However, submitting multiple loan applications quickly can lead to numerous hard credit checks, which may temporarily lower your score.
To avoid unnecessary credit inquiries, working with a broker can help you find the right lender without impacting your credit unnecessarily.
Should You Choose a Secured Loan or Remortgage?
A common alternative to a secured loan is remortgage, which involves refinancing your existing mortgage to release equity. While a remortgage often provides lower interest rates than a secured loan, it may not always be the best option. For example, a secured loan could be a more cost-effective solution if you're currently on a fixed-rate mortgage with early repayment penalties.
A mortgage expert can help assess whether a secured loan or remortgage is better for your circumstances.
Can You Repay a Secured Loan Early?
Many borrowers prefer to clear their secured loans ahead of schedule to reduce long-term interest costs. Some lenders allow early repayments without penalties, while others may charge early repayment fees. If early repayment is possible, it's important to factor this into your decision when choosing a lender.
Advantages and Disadvantages of a Secured Loan
Advantages:
- Higher borrowing limits compared to unsecured loans
- Lower interest rates than credit cards or personal loans
- Longer repayment terms, making monthly payments more manageable
- Easier approval for those with lower credit scores
Disadvantages:
- Your home is at risk if you fail to make repayments
- Interest costs can be higher over long repayment terms
- Some lenders charge early repayment fees
Before taking out a secured loan, you must meet the repayment terms. At Prosper Home Loans, we can also help you review protection options, such as income protection insurance, to safeguard your ability to make payments in case of unexpected financial difficulties.
How Can a Mortgage Broker Help?
Navigating the secured loan market can be overwhelming, with different lenders offering varying terms, interest rates, and eligibility criteria. At Prosper Home Loans, we take a tailored approach—assessing your financial situation and advising on the best borrowing options.
If a secured loan is right for you, we’ll help you find a suitable lender, ensure affordability, and explain all potential risks and benefits. We aim to provide transparent, expert guidance so you can confidently make informed financial decisions.
Speak to a Specialist Today
If you're considering a secured loan, our team at Prosper Home Loans is here to help. We offer flexible consultation options via phone, video call, or email, ensuring a hassle-free experience that fits your schedule.
Contact us today for a no-obligation chat and discover how we can help you secure the right loan for your needs.
