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What is a secured loan?

Secured loans include mortgages and home loans. They allow you to borrow or ‘secure’ money against an asset you own – usually property.

How do secured loans work?

With secured loans, the property itself serves as collateral. This means a lender can sell (repossess) your home if you’re unable to keep up with the repayments. 

Secured loans can be useful if you need to borrow a large sum of money. The interest rate is calculated as a percentage of the amount you owe – it may be fixed or variable depending on the type of loan you choose. 

A mortgage is always a secured loan – where you put down a deposit and borrow the remaining amount to help you buy a property. 

A home loan is another type of secured loan, which allows you to borrow money against the equity in your home. A home loan could be your only form of secured borrowing, or on top of an existing mortgage. You may consider taking out a home loan to help pay for a home extension, for example.

Some car loans can also be secured, where the vehicle will be used as security for the loan.

What are the benefits of secured loans?

You can usually borrow a larger amount

You can generally borrow more on a secured loan than an unsecured loan. 

Although the amount you’re able to borrow will depend on your individual circumstances, including:

The maximum amount you can borrow may also depend on your loan-to-value (LTV) ratio – the size of the loan as a proportion of the value of your home.

Our mortgage calculator can give you an idea of how much you could borrow based on your income.

Interest rates tend to be lower

Typically, secured loans will offer a lower rate of interest than unsecured loans because the bank has the guarantee of the secured asset. However, factors such as the size of the loan, the equity you have in your property and your credit score can determine the interest rate a lender is willing to offer. 

Secured loans are less influenced by credit scores

If you have a low credit score, some lenders may be more open to offering you a loan if it’s secured against your home, compared to an unsecured loan. However, if the lender believes you’ll struggle to keep up with the repayments, you may not be offered a loan. 

Before applying, it’s recommended that you check your credit report and improve your credit score as much as you can. A good credit score can improve your prospects of getting a mortgage and impact the types of deals you’re offered.  

Explore: 5 reasons to care about your credit score

Things to consider before taking out a secured loan

You could lose your home if you’re unable to repay

Any late or missed repayments can negatively impact your credit score and your ability to borrow money in the future. When the loan is secured against your property, you also run the risk of losing your home. 

When taking out a mortgage, it’s important to work out what you can comfortably afford, including any additional costs of owning a home. 

Use our mortgage repayment calculator to find out what your repayments might be, and how that may impact your monthly budget.

Some secured loans have variable interest rates

A fixed-rate mortgage will mean your monthly payments should stay the same until an agreed date, no matter what happens to interest rates in the market. However, if you have a variable-rate mortgage, the interest rate can go up as well as down, meaning your repayments could increase or decrease.

Explore: What are the different types of mortgages?

Secured loans have longer repayment periods

A mortgage is a long-term agreement. Although your monthly repayments on a secured loan could be lower than an unsecured loan, you might be paying it off for 25, 30 or even 35 years. This means you’ll pay more in interest overall. 

Think carefully about securing debts against your home. 

Your property may be repossessed if you don’t keep up the repayments.