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Borrow more at a lower interest rate with a secured loan

If you're a homeowner or have another valuable asset, you could get a cheaper loan by putting it up as collateral

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Last updated
October 27th, 2023

What is a secured loan?

A secured loan is a type of credit that requires you to put up an asset as security. Typically, this is your home or another property you own, which is why secured loans are sometimes called 'homeowner loans' or 'second-charge mortgages'.

If you cannot repay a secured loan, the bank or lender can repossess the asset pledged as security. If you secured the loan with your home, the lender is entitled to sell it to recoup the borrowed money. This is why you should always be careful before securing debts against your home. If you choose to go ahead, make sure you have a iron-clad repayment plan so you don’t miss any payments.

How do secured loans work?

Secured loans involve borrowing money against the value of your property. The amount you can borrow typically depends on the equity in your home and your ability to repay.

The interest rates for secured loans are usually lower than unsecured loans because the collateral reduces the lender's risk. This same reason also allows you to borrow more than you would with an unsecured loan. Depending on the value of your home, lenders may offer loans of between £5,000 to £2.5 million or more.

Is a secured loan right for me?

Before considering a secured loan, it's essential to assess your financial situation and borrowing needs. While secured loans offer the ability to borrow a lot more money, they also have a lot of risk, as you could lose you home or asset, which you put up as collateral, in the event that you're unable to keep up with repayments.

However, they are ideal for individuals who need a significant amount of money, have a valuable asset, such as a property, to use as a security, and feel confident about managing the monthly repayments. In that context, they can be a viable option for homeowners looking to fund major expenses such as home improvements or debt consolidation.

You can read more about borrowing against your home in our guide.

What can be used as security?

In the context of secured loans, the security is typically your property. This could be your primary residence or another property you own. Some lenders might also consider other valuable assets as security, such as another property, or jewelry, but homes are the most common form of collateral for secured loans.

Car loans are form of secured loans, but typically those can only be secured against the car you're intending to purchase.

How to choose the best secured loan

Comparing secured loans is essential to find the best terms and rates. When comparing secured loans, several factors should be taken into account to ensure you're making an informed decision:


Consider whether the monthly repayments fit comfortably within your budget. Failure to make repayments can lead to the risk of losing your property.

Interest rates

Interest rates significantly impact the overall cost of the loan. Lower rates translate to more affordable repayments over the loan term.

Length of loan

The loan term affects both your monthly payments and the total interest paid. Longer terms might result in lower monthly payments but higher overall interest costs.


Understanding the risks associated with secured loans is crucial. If you default on payments, your property is at risk of repossession. Assess your ability to meet repayments before committing to a loan.

Pros and cons


Lower interest rates: Secured loans typically come with lower interest rates compared to unsecured loans since the lender has collateral to mitigate their risk.
Access to higher amounts: Secured loans allow borrowers to access larger loan amounts than unsecured loans. This is especially beneficial for significant expenses like home renovations or consolidating debt.
Flexible use: Sorrowers have the flexibility to use the loan amount for various purposes, such as home improvements, education, or even starting a business.
Longer repayment period: Secured loans often come with longer repayment terms, which can lead to more manageable monthly payments and reduced financial strain.
Approval for those with lower credit scores: Secured loans can be more accessible for individuals with lower credit scores since the collateral reduces the lender's risk.
Improved credit: Successfully repaying a secured loan can positively impact your credit score, making it easier to access credit in the future.


Risk of asset repossession: The most significant drawback of secured loans is the risk of losing the collateral (often your home) if you fail to make payments. This can lead to a substantial financial loss.
Lengthy application process: Secured loans can involve a more complex application process due to property appraisals, title searches, and legal documentation.
Costly additional charges: Some secured loans may come with extra charges, such as arrangement fees, valuation fees, or early repayment penalties. It's essential to understand all associated costs.
Tied to property value: The loan amount you can access is often tied to the value of your property. If property values decrease, it might limit your borrowing options.
Long-term commitment: Longer loan terms mean being committed to repayments over an extended period, which might restrict financial flexibility.
Potential overborrowing: With the possibility of accessing significant amounts of money, there's a risk of overborrowing and finding yourself in more debt than you can handle.

How much do secured loans cost?

The cost of secured loans can vary widely depending on several factors. Here are some key factors that can affect the cost of secured loans:

  • Interest rate: The interest rate on a secured loan is a significant factor in determining the cost. The rate can vary from lender to lender and may be fixed or variable. Your creditworthiness and the loan-to-value ratio (LTV) of your collateral will also impact the interest rate offered.

  • Loan amount: The amount you borrow will affect the overall cost of the loan. Generally, larger loans will result in higher interest costs over the life of the loan.

  • Loan term: The length of the loan term can impact the cost. Longer-term loans typically have lower monthly payments but may result in higher overall interest costs.

  • Credit score: Your credit score plays a crucial role in the interest rate you are offered. Borrowers with higher credit scores are more likely to qualify for lower interest rates.

  • Loan-to-Value Ratio (LTV): The LTV ratio represents the percentage of the property's value that you are borrowing against. Lower LTV ratios typically result in lower interest rates because they represent less risk to the lender.

  • Lender fees: Lenders may charge various fees, such as arrangement fees, valuation fees, and legal fees. These fees can add to the cost of the loan.

With's loan repayment calculator, you can estimate the total cost of the loan, including interest.

Market interest rates can also influence the cost of secured loans. When interest rates in the broader market are low, you may be able to secure a more favourable rate."

How does the application process work?

The application process for secured loans typically involves:

  • Researching and comparing lenders.

  • Gathering necessary documents, such as proof of income and property ownership.

  • Applying online or in-person.

  • Lender reviews your application and performs a credit check.

  • Valuation of your property is conducted.

  • If approved, the funds are disbursed.

  • Protecting yourself against scams

With a secured loan it's crucial for borrowers to assess their ability to repay the loan and understand the potential consequences of defaulting. While it offers an opportunity for responsible borrowers to access needed capital, it's essential to weigh the benefits against the risks and make an informed decision based on individual financial circumstances.

Alternatives to secured loans

If you're hesitant about securing a loan against your property, consider these alternatives:

Unsecured loans

These don't require collateral but might have higher interest rates, and you may be limited in how much you can borrow.

Personal line of credit

A line of credit is a type of loan that gives the borrower access to a set amount of cash. The borrower can draw on this as and when they need to until they reach the credit limit.

Credit cards

Can be used for borrowing smaller amounts but often have much higher interest rates.


What is the difference between a secured and unsecured loan?

Unsecured loans - or personal loans - do not have collateral requirements, but with secured loans you would have to put up an asset like your home or car as a guarantee.

Can I get a part secured, part unsecured loan?

No, you will need to apply for two separate loans if you decide to do this.

Which is easier to apply for?

Unsecured loans tend to be quicker because the lender doesn’t need to check the value of your security when you apply.

Can I get a joint secured or unsecured loan?

Yes, you can get a joint loan for both. If you apply for a secured loan with someone else they will need to also own the property you use as security.

Does a secured loan hurt your credit?

New secured loan deals are recorded on your credit report, just like unsecured loans.

As long as you repay on time, having either sort of loan should improve your credit score. Conversely, if you're late with payments or default on the loan it will lower your credit score.

In depth guides to loans

Find out more about loans with our in-depth guides
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What is the easiest personal loan to get approved for?
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What type of loan is right for you?

About the author

Salman Haqqi
Salman Haqqi spent over a decade as a journalist reporting in several countries around the world. Now as a personal finance expert, he helps people make informed financial decisions.

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