A secured loan, sometimes known as a homeowner loan, is a type of loan that allows you to borrow a sum of money. It involves putting up one of your assets as a guarantee, usually your home.
Secured loans may be an appealing choice for people who are looking to borrow money. However, it’s important to understand the ins and outs of secured loans to ensure you’re making the right decision for you.
In this guide, we’ll cover everything you need to know about what secured loans are and how they work, including:
- The pros and cons of secured loans
- What secured loans may be used for
- How long a secured loan application takes
- What documents you need for a secured loan
- Secured loans and bad credit
- Joint secured loans
Taking out a secured loan is a big decision. If you need any further information, take a look at our Loan Basics page for more useful guides.
What is a secured loan?
A secured loan is a borrowing agreement between you and a lender guaranteed by one of your assets. When an already mortgaged property is used as security, secured loans are commonly referred to as second charge mortgages or homeowner loans. They sit alongside your existing (first charge) mortgage and are used for additional borrowing rather than buying a home.
It’s important to note that while a first charge mortgage is also a type of secured loan, throughout this guide we are referring specifically to second charge secured loans used for additional borrowing.
Secured loans are just one of the options available if you’re looking to borrow money from a lender. However, it’s important to understand how these work and what you’re agreeing to before applying.
Interest rates vary from lender to lender, and there are lots of different types. This is where it gets a little more confusing. Don’t worry, we explain this in the next section.
How does a secured loan work?
The fundamentals of a secured loan are the same as an unsecured (personal) one: you borrow money and pay it back in instalments over the loan term, plus any interest owed. Some loans are offered with a fixed interest rate, while others come with a variable interest rate which could rise and fall.
Where secured loans work slightly differently is the need for ‘security’. To receive the loan, you put up an asset as a guarantee. This asset is usually a property if you’re a homeowner. You must be a homeowner with an existing mortgage to be eligible for a second charge mortgage/secured loan, as this type of loan is taken out in addition to your current mortgage borrowing.
If you fail to keep up with repayments, the lender can legally take possession of your home to repay the money you owe them. Once the loan is paid back in full, the lender no longer has an interest in the property.
What are the pros and cons of secured loans?
The advantages of a secured loan agreement may make it an attractive option for you. But it’s equally important to think about the potential disadvantages.
Consider the following before applying for one:
Secured loan pros
- You could borrow more: with the security of a property guaranteeing your loan, lenders are often more willing to lend larger amounts than with unsecured loans. You could borrow anything up to £105,000 and perhaps more with some lenders. However, this amount usually depends on factors such as your mortgage balance, the value of your property and the amount of any lending secured against it.
- You could find it easier to be approved: secured loans carry reduced risks for lenders, so you may find it easier to be approved if you’ve already been rejected for a personal loan. This may be true even if you have a poor credit history.
- You could spread repayments over a longer period: secured loans usually come with the option of extended loan terms. Spreading repayments over a longer period might help to reduce your monthly instalments if that’s a priority for you.
Secured loan cons
- Your property could be at risk: if you fail to make repayments, your lender is legally able to repossess your home. If you do fall behind on repayments, reach out to your lender for support. There may be other ways to resolve the issue but think carefully about this risk before applying.
- You might pay more interest overall with a longer loan term: reducing your monthly repayments may be a priority for you. But keep in mind that this is likely to cost you more in interest over the loan term. However, this may still be worthwhile depending on your circumstances.
- You could face fees if you choose to repay early: paying off a secured loan sooner than you thought can be a great feeling. However, beware that you may incur early repayment fees with some lenders. You may still be able to save money by repaying early, but it’s worth comparing the charges before doing so.
What can secured loans be used for?
Secured loans often allow you to borrow larger amounts over longer terms. This means they may be useful for planned, high-value expenses where spreading the cost makes financial sense.
Some of the most common uses are:
- Consolidating your debts: Some people use secured loans to combine multiple existing debts into a single monthly payment. This may help make your finances easier to manage and, in some cases, reduce your overall monthly outgoings. However, it’s important to ensure the new loan is better for you. Extending repayment over a longer period could mean paying more interest overall.
- Home improvements: Secured loans are often used to fund home renovations such as extensions. They may be used by homeowners who are planning to sell in the future, as the improvements could increase the value of the property.
- Buying a car or bike: While there are specific finance options available for vehicles, a secured loan may offer more flexibility. This could be the case if you’re purchasing a higher-value car or want to avoid the mileage restrictions or balloon payments associated with some car finance agreements.
- Paying for a wedding: A secured loan may help cover venue hire, catering and other costs associated with weddings. This allows you to spread the cost over time rather than paying everything upfront.
- Investing in your business: If you have an existing business venture, a secured loan may provide access to capital for expansion, equipment or cash flow support. However, as your home may be at risk, it’s essential to carefully assess the potential return on investment before proceeding.
Depending on the lender, secured loans may also be used for funding education, covering unexpected large expenses or supporting major life events. Most lenders will outline any restrictions during the application process.
If you are thinking about bringing debts together, remember that doing so may increase how much you’ll repay and how long it takes.
Can I get a secured loan with bad credit?
One of the main advantages of secured loans is that some lenders may offer more flexible lending criteria. This could make them an option worth considering for some borrowers with less-than-perfect or limited credit histories. This is because the asset you offer as security guarantees the loan and reduces the risk for lenders.
Can I get a joint secured loan with my partner?
If you own your home with a partner, a secured loan tied to your property would have to be a joint loan. You may be able to access more borrowing options and better rates with two incomes rather than one. It’s crucial to understand that you’re both legally responsible for making repayments, even if the relationship ends.
Find out more in our guide on everything you need to know before taking out a joint loan.
What documents do I need for a secured loan?
The documents usually needed for a secured loan application are:
- Proof of identification
- Proof of income
- Bank statements
- Proof of address
You may be asked for other documents by the lender during the application process.
How long does a secured loan application take?
The process of applying for and obtaining a secured loan differs from lender to lender. The lender will run checks to ensure all the information provided is accurate, assess whether you can afford the repayments and file all the necessary paperwork.
Check your eligibility for a secured loan from Evolution Money
Ready to apply? Check your eligibility for a secured loan with Evolution Money today. We may be able to lend you up to £105,000, with flexible repayment terms from 3 to 20 years.
Feel free to read some of our customer reviews to see why we’re rated ‘Exceptional’ on Feefo.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 – 70. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Representative 17.46% APRC (Variable)
For a typical loan of £23,120 over 120 months with a variable interest rate of 17.46% per annum, your monthly repayments would be £442.07. This includes a Product Fee of £2,312.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £53,047.80. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
