Borrowing money and using your property as security is known as a secured loan.
By ‘securing’ the loan, you are proving to the lender that you can pay them back, even if you struggle to find the money. But you need to be aware of the risks. If you fail to repay, the lender can take the property in lieu of repayment.
Secured loans are sometimes referred to as 'homeowner loans' because you usually need to own a chunk of equity in your house in order to qualify. It’s possible to secure a loan against an asset other than property – a vehicle or jewellery, for example.
These loans shouldn’t be entered into lightly. If you default on your payments, you could lose your home.
But there are a few reasons you might choose a secured loan:
A secured loan lets you borrow more than you could with a personal loan, typically £15,000 or more
Secured loans sometimes have more competitive interest rates than unsecured loans. That’s because they’re a lower risk to lenders. Your property is their security
It can be easier to get accepted for secured loans if you have a less than perfect credit history. Again, that’s because offering your home or other property as security makes you a lower risk to the lender
Unsecured personal loans typically have maximum terms of five years, but secured loans can often be repaid over much longer periods. Most between five and 25 years. That can reduce the monthly repayments, but means you’ll pay more overall in interest
Usually between £5,000 and £100,000. How much you can borrow will depend on your own personal circumstances. Including the value of your home, the equity you have in it and your credit history.
There are three types of secured loan. Make sure you understand how the interest rate could change over time and how that could affect your future repayments.
You pay a fixed amount every month throughout the term of the deal. Your repayments won’t change, which could make it easier to budget.
These work in a similar way to a fixed-rate mortgage. You pay a fixed amount every month throughout the short term of the fixed rate (usually between one and five years).
After the short term, your repayments will then revert to the lender's standard variable rate, meaning that your payments could go up or down.
The interest rate changes when the Bank of England base rate changes.
This means that your monthly repayments and the total amount you repay over the term could increase or decrease. If interest rates go up you could repay a lot more than you originally budgeted for or, in the worst-case scenario, be unable to meet your repayments.
With a secured loan, the debt is secured against something you own (usually your house). With an unsecured loan, there’s no security.
An unsecured or personal loan is a bigger risk for the lender, so you usually can’t borrow as much and there may be a higher interest rate.
When you compare loans with us, you’ll see unsecured loans in our best-buy table. Use the ‘View secured loans’ button to see secured loans instead.
Our smart search tool allows you to see just the deals you're likely to qualify for without impacting your credit score. It’ll give you a better idea of the loans you might be approved for, and the interest rates you’ll be offered.
You won’t have to put your home up as security to get a personal loan, but you’ll only be able to borrow a smaller amount – typically up to £20,000.
You’ll also need a good credit record to get the most competitive rates.
If you don’t have any property of your own to put up as security for a loan, you could ask a friend or family member to be a guarantor.
Your guarantor ‘backs up’ your loan for you, so they will have to trust that you’ll make the repayments.
If you fail to repay, the loan company will ask the guarantor to pay.
They may need to be a homeowner and offer to use their own home as security.
Remortgaging can be a good alternative to taking out another secured debt against your home.
A mortgage is just another type of secured loan, so it can make sense to consolidate your debt in your existing mortgage rather than taking out an additional loan.
You’ll need to have enough equity in your home to release some money and still qualify for a mortgage.
Look out for high upfront fees and remember that extending the term of a mortgage means paying interest for longer, increasing the overall cost of debt.
There are secured loans available for those with poor credit histories.
Some secured loans are easier to qualify for because the lender has the security of your home to guarantee it’ll get its money back if you fail to repay.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT