Secured loans
When you’re exploring borrowing options, one term you’ll likely come across is a secured loan. A secured loan is a loan backed by an asset that the lender can claim if the borrower fails to repay.
Understanding how secured loans work is important when deciding if they’re the right choice for you.
Representative 48.7% APR
How do secured loans work?
A secured loan lets you borrow money by using something you own as security, like your home or vehicle. Because of this, you might get lower interest rates, bigger loan amounts, and longer repayment terms compared to an unsecured loan.
What can be used as collateral?
The asset you use depends on the type of secured loan but can include:
- Your home or property
- A car or other vehicle
- Other high‑value assets
If you keep up with your repayments, nothing changes, you continue to own and use your asset as normal. If you don’t keep up with payments, your lender could repossess the asset to recover the money owed.
Types of secured loans include:
- Homeowner loans
- Debt consolidation loans
- Second-charge mortgages
- Mortgages
- Guarantor loans
- Bridging loans
ClearScore can help you find personal loans:
- From £1,000 to £25,000
- Over 1 to 5 years
- No impact to your credit score
- Personalised offers tailored to your needs
- Know what you'll repay each month and over what term, upfront
Representative 48.7% APR
*Vanquis Bank acts as a credit broker, not a lender, introducing customers to our partner ClearScore. ClearScore acts as a credit broker and not as a lender. If you take out a loan, Vanquis Bank and ClearScore receive a commission payment from your lender. If you’d like further information about the commission Vanquis Bank or ClearScore receive as a result of your loan, please contact us. We will not charge you a fee for our services. Loans can only be offered to customers aged 18 or over. Credit is subject to status. Terms and conditions apply.
What can secured loans be used for?
A secured loan can be used for several different things, including:
- Home improvements: Such as renovations, extensions, or redecorating
- Debt consolidation: Combining existing debts into one monthly payment
- Buying a car: Spreading the cost of a new or used car
- Life events: Such as weddings, holidays, or special occasions
- Big purchases: Such as furniture or home appliances
Secured vs unsecured loans
A loan can be either secured or unsecured.
With a secured loan, you must provide collateral. This means you need an asset worth about the same or more as the amount you’re borrowing. If you’re unable to keep up with repayments, the lender may repossess the asset to recover the money.
Unsecured personal loans don’t need collateral. People often use them for unexpected expenses or to consolidate debts. But which one is best for you?
A secured loan could work for you if:
- You’re comfortable using an asset, like your home, as collateral
- You have poor credit or a limited credit history
- You want to borrow a larger amount
- You want to repay the loan over a longer period
An unsecured loan could work for you if:
- You don’t want to use an asset, like your home, as collateral
- You’re looking to borrow a smaller amount
- You want to repay the loan over a shorter period
- You’re looking for a faster application process
Remember that missed or late repayments on your loan can damage your credit score. The lender can also take action to recover the unpaid balance, plus any interest and fees owed as well as recover the asset you secured the loan against.
Our loans expert says…
“A secured loan can be a good option for customers who may find it harder to access traditional forms of credit. By using an asset such as your home as security, it can open up access to larger loan amounts or more flexible terms, helping you move forward with plans that might otherwise feel out of reach.”
Chloe Hewson, Strategic Partnerships Manager at Vanquis.
What happens if you default on a secured loan?
The main disadvantage of a secured loan is that it’s backed by an asset, like your home. If you’re unable to keep up with repayments, the lender may repossess the asset to recover the money owed.
Only take out a secured loan if you’re sure you can manage the repayments for the entire term.
If you’re struggling to repay your loan, please reach out to the lender first.
FAQs
Does a secured loan impact my credit score?
Yes, a secured loan can affect your credit score, both positively and negatively.
Making payments on time: If you make your repayments in full and on time, a secured loan can improve your credit score over time. Making payments on time shows lenders you can borrow responsibly.
Missing or late payments: A missed payment is usually recorded on your credit file and can have a negative impact on your credit score. If you miss repayments often, your account might go into arrears or default. This can impact your credit score and lead the lender to take action to recover the debt.
Credit checks: When you apply for a secured loan, lenders will usually carry out a hard credit check to understand your financial history and habits. This type of check does affect your credit score and leaves a visible mark. They usually stay on your credit file for 12 months and can cause your score to drop, even if you have good or excellent credit.
Although a ‘hard credit check’ is impossible to avoid when committing to a full credit card application, it’s best to make sure you’re not doing too many at once. This can affect your credit score in a negative way.
Is it easier to get approved for a secured loan?
Not necessarily. Lenders will check creditworthiness and affordability before approving any loan application, whether secured or unsecured.
Because secured loans are backed by an asset, such as your home or car, they generally present less risk to the lender. If repayments aren’t maintained, the lender may be able to recover some or all of the debt by selling the asset.
This added security may mean some lenders are willing to offer larger loan amounts or consider applications that wouldn’t meet the criteria for an unsecured loan. But approval is not guaranteed. It depends on your situation and the lender’s eligibility criteria.
Remember that your asset is at risk if you can’t keep up with repayments, so secured borrowing should always be considered carefully.
How is my home valued when taking a secured loan?
When you apply for a secured loan, your lender will value your home (through a chartered surveyor) to check how much it’s worth and how much you can borrow.
The valuation looks at factors like your property’s market value, condition, location and your remaining mortgage. It helps the lender decide how much they’re willing to lend and the terms of your loan.
Do I have to pay my secured loan if I move house or sell my asset?
Yes. If your loan is secured, it usually needs to be repaid when you sell the property or asset it’s linked to.
- If it’s secured on your home, the loan is usually paid off from the sale proceeds. But, if the sale of your home doesn’t cover the secured loan, you’ll be responsible for paying the difference yourself. You can also pay off the loan beforehand.
- If it’s secured on an asset (like a car), you’ll usually need to clear the loan before selling it.
In some situations, your lender may allow you to transfer the loan to a new property or refinance, but this depends on your agreement and eligibility. It’s important to check your agreement for any early repayment fees or options to transfer the loan.
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