What is a secured loan?
When a loan is ‘secured’ it means that an asset is taken as a security against the sum borrowed (typically a house or property). If a person defaults on a this type of loan, or is unable to keep up with repayments, then the lender will have the right to seize the security to pay it off.
The security is sometimes referred to as ‘collateral’ and secured loans can also be known as second-charge mortgages and homeowner loans. Loans can sometimes be secured against other high-value assets other than homes, for example a car.
Advantages of a Secured Loan
The most obvious advantage of a secured loan is that they are often easier to get approved for. This is because the security reduces the overall risk taken on by the lender, making it a more attractive proposition. This is particulalry beneficial for people with little or poor credit history who might not be eligible for an unsecured or personal loan.
The amount you can borrow with a secured loan is generally higher when compared with personal loans and you can also stretch the payments over a longer period of time.
Disadvantages of Secured loans
The main disadvantage of a secured loan is the increased risk taken on by the borrower. If you found yourself in a position where you couldn't repay the loan (or part of it) then it's likely you would have to hand the security over. Although this may seem like an unlikely outcome, circumstances can always change so it's something that must be considered.
Final thoughts and advice
- A secured loan can be a useful way to access credit.
- The security is the asset you pledge in the lending agreement (sometimes known as collateral).
- They are well suited to big purchases like property or signifacnt home improvements.
- There is a large risk as you can lose the security if you can't repay the loan.
You can start your search for a secured loan today. Head to our application page and discover secured loans offers from our panel of lenders. Searching is free and it won't affect your credit score.