What is a Secured Loan– The Good, the Bad and the Ugly

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By Adam Brand.

Operations Director

Every day Brits are taking advantage of secured loans to provide long-term financing to cover everything from buying a new car to taking care of much-needed home improvements. Secured loans have many upsides that make them attractive to borrowers. However, there are also some downsides involved. It pays to know the pros and cons of such financing before agreeing to take a loan.

What is a secured loan? It is a loan you take out against the equity in your home. Equity is the difference between what you owe on your mortgage and how much your home is worth on the retail market. Lenders will allow you to borrow money against that value for whatever purpose you see fit.

The Good

The advantages of a secured loan over other forms of financing are numerous. For starters, such loans are considered long-term financing in that you could take as long as 25 years to repay what you borrow. This allows borrowers to stretch repayments over a longer period in order to make them more affordable from month-to-month.

Another advantage is the ability to borrow against the equity in your home. By using a home as collateral, consumers have more borrowing power. Furthermore, lenders are more willing to make loans because they can always repossess a home should the borrower default.

A third advantage of a secured loan is the ability to use it for just about anything you want. That is not the case with other forms of credit. For example, a car loan is only for the purposes of buying a car. With a secured loan, you can use it to pay for a storybook wedding in a tropical locale if you wanted to.

The Bad

Just as there are advantages to secured loans, there are disadvantages as well. One of the main disadvantages is that consumers are limited to the equity in their homes in terms of how much they can borrow. For example, if you required £75,000 in order to complete the home renovation project of your dreams, a secured loan based on £50,000 in equity is not going to cover everything. You would have to take out multiple loans to pay all of your renovation expenses.

Secured home loans also come with additional costs above and beyond the interest you pay for borrowing. These costs are more or less what the bank spends to originate, offer, and administer your loan. The combination of these costs and your standard interest rate are combined in what is known as a representative APR. When you compare lenders, you will see that some representative APRs are rather high.

The Ugly

While secured loans are mostly a good option for long-term financing, there is one ugly aspect that must be considered before you take a loan: your home could be repossessed and sold if you fail to make your payments. It is vitally important to know for sure that you can repay before borrowing money against the equity in your home.

Also, remember that the lender puts a second charge on your home when you borrow. This means they are second in line in the event your home is repossessed. Should the sale price not cover both the mortgage and the entire cost of your secured loan, you will still be responsible for paying the remaining balance.

What is a secured loan? It is a long-term financing option that takes advantage of the equity in your home to provide cash for other purposes. There are dozens of lenders throughout the UK offering secured loans at various rates.

Expert Help if you need it.

If you need some guidance to compare lenders and offers, help with choosing the best loan offers that suit your individual needs and circumstances or would like an expert to increase your chances of a successful application by making an application on your behalf our professional secured loan experts can help.

There is no charge for our professional advice and our experts will ensure you know all the costs before making any decision to proceed with an application.

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  • Borrow up to £2,500,000 Depending on the Equity in Your House.
  • Adjustable Repayment Terms from 3 to 30 years.
  • Secured Loans Can Be Used for Almost any Purpose.
  • Low Interest Rates.
  • Rapid Approval - Low Arrangement Fees.
  • Options for Homeowners with Bad Credit History.
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