Secured loans

See if a secured loan is right for you

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What’s a secured loan?

A secured loan means using something you own as collateral

It’s usually for homeowners and is sometimes called a homeowner loan. That’s because people tend to use their home as collateral – but some lenders will accept other things too, like a car. It depends on the type of loan, loan amount, and lender requirements.

Lenders can take your assets if you’re not able to repay the loan

The collateral you use to secure your loan is at risk if you can't make the repayments. This also applies if you don't stick to your lender's terms and conditions.

It could be a good idea to look for unsecured loans first

Unsecured loans can be less risky because your property isn’t linked to the loan agreement. But, if the unsecured loans on offer don’t come with the loan amount or interest rates you’re looking for, you could see if a secured loan works better for you.

The different types of secured loans

There are several types of secured loans, including home equity loans, car loans, and personal loans.

Home equity loans

A home equity loan is a type of secured loan that allows you to borrow money against the equity you've built up in your home. The loan is secured by the home, and the lender will use the home as collateral if you're unable to repay the loan.

Car loans

A car loan is a type of secured loan that allows you to borrow money to purchase a car. The loan is secured by the car, and the lender will use the car as collateral if you're unable to repay the loan.

Secured personal loans

A secured personal loan allows you to borrow money for personal expenses, such as home improvements or debt consolidation. The loan is secured by the your assets, like your home or car, and the lender will use these assets as collateral if you’re is unable to repay the loan.

The benefits of secured loans

There are some benefits to think about as well.
The interest rates could be lower than other loans, because the lender has the collateral to hold onto if you can’t keep up with the repayments.
The loan amounts could be high (depending on the value of the assets securing the loan).
There are sometimes longer repayment terms which can help lower the cost of the monthly payments (but check what the interest and total amount repayable is).

The risks of secured loans

It’s important to understand that defaulting, or making late payments, can mean losing what you’ve used to secure the loan.
If you default on your loan, the lender can repossess your collateral (e.g. your home or car).
If the value of the collateral decreases over time, you might owe more on the loan than the asset is worth, which is known as negative equity. That would mean you might have to repay the difference even if the lender has taken your assets.
The interest rates could be high if you have a bad credit score.

The application process

You can apply in the same way you’d apply for any other loan.

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Alternatives to secured loans

There are some other options out there if you’re not sure a secured loan is right for you.

Unsecured personal loans

Unsecured personal loans
don't require collateral. Lenders assess your affordability and ability to repay the loan based on your credit history, income, and other factors. They can have higher interest rates than secured loans, but could be a good option if you don't want to put your assets at risk.

Guarantor loans

Guarantor loans
are another type of unsecured loan. If a friend or relative meets your lender’s criteria, they could help you get a loan by promising to make the repayments (as a last resort) on your behalf.

0% purchase cards

0% purchase cards
can be great for larger purchases. You can spread the cost of what you spend over the 0% interest period – making it easier to budget for those few months.

What’s the difference between a secured and unsecured loan?

A secured loan uses something you own as collateral

This could be your house, car, or something else – it depends on the loan amount you’re looking for and the lender’s requirements. If you miss too many payments or default on your loan, a lender can take the security item and use it to pay off what you owe.

Unsecured loans don’t use collateral

An unsecured loan doesn't need a security item. You’ll make regular monthly repayments for the full loan amount (which includes any interest that adds up over the loan term).

What happens if you miss a payment on a secured loan?

Because this type of loan is linked to your property, car or whatever you use as collateral, missing a repayment could mean losing them. And if the value of the asset is not enough to cover the loan, you may still have to pay for it. But there are things you can do to prevent this.

Contact your lender

Let your lender know you’ve missed payment on your loan. You can usually find their contact information by scrolling to the bottom of their website and clicking on something like ‘Contact us’.

See what your options are

Contacting their customer service team should give you the opportunity to agree the steps you’ll take to make up the payment.
They might be able to offer you a temporary repayment plan or extend the length of your agreement to help you get back on track.

Make the payment as soon as you can

If you’re able to make the payment, it’s a good idea to do it sooner rather than later.
The lender might charge you a missed payment fee – but they should contact you to let you know.

How much do secured loans cost?

The cost of a secured loan will depend on several factors, including the interest rate, the loan amount, and the repayment term.

How much can you borrow with a secured loan?

The amount you can borrow with a secured loan will depend on the value of the asset you're using as collateral. It's important to carefully consider the risks associated with a secured loan before making a decision.

Get free help with your debt worries, from StepChange

You’re not alone. StepChange helps people with debt every day

If you've got money worries, know that you're not alone. It's a lot more common than you think. But it's important not to ignore these things and to seek support if you need it.
We’re working in partnership with
StepChange
to give you access to their free debt advice and support.

It won’t affect your credit score

StepChange won’t share anything you tell them with us, or a credit search on you.

Getting a secured loan when you’ve got a bad credit score

If you have a bad or low credit score, you could still get a secured loan.
You might have to pay more interest or put up more collateral, but, at ClearScore, we work with lenders who specialise in helping you find the right loan for your score.
Representative 39.9% APR.

How can you improve your credit score?

There are some simple steps you can take to improve your score.

Register to vote

Once you’re on the electoral roll, lenders can more easily check for proof of address – which can also speed up your application for a loan.

Fix mistakes in your report

If you spot any accounts you don’t recognise, or mistakes in your personal information, let the credit reference agency (like Equifax, Experian or TransUnion) know.

Put some bills in your name

This can be helpful when you’re new to credit. Opening a bank account and paying your bills by Direct Debit means you can start building your credit history.

Try not to apply for lots of credit at once

It’s a good idea to wait about 6 months between credit applications (so you can show you’re borrowing responsibly).

Keep your credit utilisation between 10% and 70%

Credit utilisation – which just means how much of your available credit you use every month – impacts your score. Keeping it between 10% and 70% can show you’re borrowing responsibly.

Pay on time and in full

If you think you’re going to miss a payment – for your credit card, loan or other expenses – let your lender know. That way, you can see what your options are in advance.

Improve your credit score with ClearScore

See what’s impacting your score

Missed payments, new accounts, hard searches and more – we’ll give you a heads-up so you can understand what's making your score move.

Get easy tips to improve it

Every week, we’ll give you up to 10 insights to help you get to grips with your report. They’re filled with easy tips that could help improve your score and get it back on track.

Feel more confident about your credit choices

From lower interest rates to higher credit limits or loan amounts, a higher credit score can give you access to better offers in the future.
We’ll show you offers tailored to you – and order them based on what might be right for you.

Learn more about secured loans

Frequently asked questions

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Other types of available loans

There are lots of loans out there – it’s important to find the right one for you.

Guarantor loans

Guarantor loans
are usually for people with a bad, or no, credit score because someone else in the agreement – the guarantor – meets the lender’s criteria and is responsible for repaying the loan if you can’t.

Loans for People on Benefits

You could still get a loan if you’re on benefits. Some lenders specialise in
loans for people on benefits
, or with a bad, no, credit history.

Loans for bad credit

Loans for bad credit
are designed for people who have a bad credit score or a poor repayment history, but these loans can come with high interest rates.

Personal Loans

A 

personal loan

 – also called an unsecured loan – is a one-off sum of money that you pay back over an agreed term (number of months).

Debt Consolidation Loans

Using a 

debt consolidation loan

 to pay off your current debt could help you focus on one, more manageable payment.

Car Finance Loan

With a
car finance loan
, there are a few different ways to pay for a new car, like UPL or hire purchase.