What are secured loans image

A guide to Secured Loans and how they work:


A secured loan, also referred to as a homeowner loan or second mortgage is used to borrow money against your home.

Your home acts as form of security for lenders if you are ever unable to keep up with the monthly repayments. This therefore means if you don’t own a property, you are unable to take out this type of loan.


How do they work?

The amount you can borrow relies on the available equity that’s in your home, which is what’s left when you subtract what’s outstanding on your mortgage, away from the value of your home.

The equity, your annual income, credit rating and your ability to pay back the loan are usually all taken into consideration when a lender determines how much they will let you borrow.

As lenders have the security of your home, you could choose a longer term in comparison to unsecured/personal loans (if this is appropriate to your needs and circumstances). However, this does mean that you will pay more interest over the term.

It is important to note that if you stop making your monthly loan repayments, lenders have the right to repossess your property to take back the money they are owed.


Why do people use Secured Loans?

Secured loans are used for various different reasons. It could be to consolidate existing debts, releasing funds for home improvements or simply raising cash for another purpose.

Some people take out secured loans to consolidate their debts if they are having difficulties paying multiple credit repayments. This can help people understand their debt better, simplify their monthly payments and potentially even reduce the interest they pay.

Home improvement loans can provide people with the funds they need to renovate and improve their home, potentially increasing the property value. These improvements could be simply to install a new kitchen or bathroom, adding an extra bedroom or building an extension or loft conversion.


Potential advantages of a Secured Loan:

As the borrowing is secured against your home:

  • You are able to borrow a larger amount of money in comparison to personal unsecured loans, if appropriate to your needs and circumstances.
  • You can typically borrow over a longer period than a personal loan, making your monthly payments more affordable, however you will pay more interest.
  • The interest rate and monthly repayments tend to be lower than it would be if you were to borrow a similar amount through a personal unsecured loan.


What to consider before applying for a Secured Loan:

Before agreeing to a secured loan, it is important to make sure that you can afford the monthly repayments. As mentioned above, lenders have the right to recover the money by repossessing your home.

Keeping that in mind, you should calculate how much you can realistically afford to repay each month, taking all of your monthly expenses into consideration.

This will ultimately help you decide on an affordable repayment term for your circumstances.

It’s also important to note that if you want to pay off your loan faster than originally agreed you may have to pay early repayment fees, therefore you should consider your loan term carefully.


Need advice?

If you are considering taking out a secured loan and would like to discuss your options with a qualified advisor, call us on the number at the top of this page or complete our ‘Contact Us’ form and we will call you back.



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