Guide to Secured Loans

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A Guide to Secured Loans

Secured loans are one of the most popular – if not the most popular – types of loans in the United Kingdom today, offering a number of benefits to all those who take one out. There are a few different points that everyone needs to understand about this type of loan though before they take the step of taking a secured loan out.

What is a Secured Loan?

A Secured Loan is a loan that is secured as a second charge on your property. It can only be secured against your property and most be the second, not first charge. The first charge will usually be your mortgage. Some confusion often arises around the term as in the US a "secured loan" can be secured on cars or other assets; this is not the case in the UK where the term refers exclusively to second charge loans on a property/building.

Do I Need a Mortgage?

Yes. A secured loan is a second charge and you can't have a second charge without a first being in place. Similarly the secured loan can't run beyond the redemption date of your mortgage.

What About my Credit Rating?

The beauty of a secured loan is that a poor credit rating in no way precludes you from getting a loan, because the loan is taken out against the equity you have in your home – something that you already own. This means that a lender is satisfied that they can regain their money should you fail to meet payments.

Many people take out a loan of this type against their home in an effort to rebuild their credit rating. In this day and age credit is playing an increasingly large role in life and having a poor credit rating often means that you don't have access to the things that you want or need. Therefore, building it up through a loan is often a great way to build your financial stability for the future!

How Much Can I Borrow?

Amounts up to £2,500,000 are available but it is really dependent on the amount of equity that you have in your home – i.e. how much of your home is actually owned by you, as opposed to how much is tied up in a mortgage. The maximum loan to value ratio that anyone can get on a secured loan is generally 95% (i.e. mortgage plus secured loan cannot exceed 85% of the value of your property), but some Lenders will loan up to £20,000 regardless of LTV. These loans do come at a price but are available.

It is worth noting that the more equity that you have in your property, the better interest rates you will get. This means that even a small loan is perfect for those who have paid off the majority of their mortgage, as the interest payable will be amongst the lowest on the market. As with every type of loan though, make sure that you check around – different providers have different rates and this could save a lot of money in the long term.

Can I repay early?

Yes, The law states that the maximum you can be charged is 1 month's repayment as a penalty to repay early. Lenders also ask that you give 1 month's notice to repay but there are no other penalties.

How Long can Loans be Taken Out for?

One of the main advantages to this type of loan is that they are usually taken out over a long period of time, therefore meaning that the amount payable each month is comparatively small. They usually run from 5 to 20 years, whereas unsecured loans typically run from 1 to 7 years. It is up to the borrower to decide whether they want to pay less per month at a higher interest rate, or more with a lower rate. As always, the total cost of credit should be noted when making your decision and not just the monthly payments.

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Frequently Asked Questions

What does a Secured Loan cost?    

The rate of the loan will depend on your circumstances (loan size, LTV, income and credit score). A broker fee is also charged to cover valuation and legal expenses and it is usually 7-10% of the loan (lower for larger loans). This fee is usually added to the loan so not payable up front

Will I be required to put a charge on my property?    

In almost all cases yes (the exception is some smaller loans of less than £10,000)

Can I use a Secured Loan to consolidate other debts?    

Yes. This is one of the best uses of a Secured Loan. You can pay off credit card and other expensive debts and consolidate into one monthly payment at a lower rate

If I have bad credit, can I still get a Secured Loans?    

Yes, you can as long as you have sufficient equity in your property and sufficient income to make the repayments. Taking a Secured Loan and maintaining repayments can help improve your credit score.

Can I repay early?    

Yes. Most lenders allow you repay early by giving one month’s notice and paying one month’s payment as a penalty

Is a Secured Loan cheaper than a mortgage?    

This depends on your circumstances. A mortgage or re-mortgage may be the better option for you but a qualified mortgage adviser can advise you better on this.

Will the interest rate be fixed?    

Typically it will be variable, but you can get options to fix for 3 or 5 years.

If I default on the loan, might I lose my house?    

Yes, this is possible. We recommend you think very carefully before securing any debt on your property.

I have a Buy To Let property, can I still get a Secured Loan on that?    

Yes. There are several lenders who will so a second charge secured loan on a BTL property.

How to get a homeowner loan

Choice Loans has great access to all the secured loan lenders in the market. There are over 25 in total, including many private lenders. Apply with us you’ll get the best opportunity to find the cheapest rate available. Get in touch for a no cost and no obligation assessment. Should you wish to proceed we’ll guide you through the process, assisting you with the paperwork and advising you every step of the way.

For Third Charge Secured Loans, click this link to learn what is available

We can also arrange Secured Loans in Northern Ireland. Click the link for more information

If you have any queries, please fill in the form opposite or call us on 01494 410 125


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What is needed to apply

Applying for a Secured Loan is very easy. Below are listed the things you need in order to apply.

  • Eligibility CriteriaYou must be a home owner and be earning sufficient income to afford the loan. How much you can get and at what rate then depends on your credit score.
  • Documents RequiredInitially it is just an online application form but once we know the specific lender best suited to you, you will need to complete their application form and show proof of ID and income.
  • Additional CommentsThe process take 2-3 weeks but you will be guided through it by an expert from start to finish.

Secured loans are a very popular option for borrowers who don't wish to remortgage. It may be that they have a tracker rate they don't want to forego or perhaps the incremental amount require doesn't merit looking for an entirely new mortgage. In these cases a secured loan can help and we have access to 20+ lenders who can assist.

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