A secured loan is a type of loan where you borrow money using your property as security, similar to how mortgages work. If you can't afford to repay a secured loan, the lender can repossess your home to get back the money owed to them. This is where the 'secured' part comes from. It's the lender that has the security, not the person taking out the loan. As the lender has this extra security, they can lend you more money than with an unsecured loan (up to £100,000 in the UK, compared to only £25,000 for an unsecured loan).
To take out a secured loan you must first have a mortgage on your property. Mortgages have a lower APR than secured loans, and are always the cheapest way to borrow money on your home. After this, secured & unsecured loans have similar APRs, followed by credit cards, store cards, HPs and other forms of credit.
Reasons for Choosing a Secured Loan
- to borrow more than is possible with an unsecured loan
- refused an unsecured loan (e.g. for having bad credit)
- lower repayments (you can repay over a longer period compared to unsecured loans)
- lower APR than an unsecured loan
- fixed rates