A secured loan can be a useful alternative to other types of lending for some borrowers. You can often borrow more money and for a longer period of time, than with an unsecured loan or credit card. However, even the best secured loans carry an additional level of risk compared to an unsecured loan, so it will not be the right option for everyone.
In this article we have included all of the essential information to help you decide if a secured loan will fit your borrowing needs. If you find that it does, we have also featured details on a selection of providers to help you find the best secured loan rates.
How secured loans work
With a secured loan you can borrow money using a valuable asset as security. The lender provides the cash in the knowledge that if the debt is not repaid, the security can be sold to settle what is owed. You may see secured loans also referred to as homeowner loans, second-charge mortgages or home loans.
As the loan is tied to the asset you put up as collateral, the amount of cash you are lent will be affected by the value of that asset. Your income and borrowing history are also important, but would be more of a factor if you were applying for an unsecured loan. Most lenders will want to be sure that the monthly instalments are low enough to come out of your regular income, with selling the asset a worst-case scenario. There will be an affordability check as part of the application process to ensure you have enough money coming in each month to meet the loan repayments without getting into financial difficulty.
Taking out a secured loan puts an asset you own – such as your home – at risk.
Due to the nature of a secured loan, you will need to own an asset of value in order to take one out. In most cases, this will be your home. It may be possible to borrow against other types of valuable items, but most providers will require a property to be used as collateral. You do not need to own the property outright, though many lenders will have a minimum equity requirement. This means that living in a valuable house will not guarantee you a secured loan, as you will also need an LTV (loan to value ratio) below a certain percentage.
If your application is approved, you will repay what you have borrowed (the capital) as well as the interest on the debt. Read our article ‘What is a secured loan?’ to learn more about the basics.
The best secured loan rates – September 2023
Here are some of the best secured loans currently available in the UK. We have included the key factors you should be thinking about when comparing secured loans to help you find the best option.
Best secured loan rates - £30,000 over 10 years - 60% LTV
|Loan provider||Loan term||Loan amount||Maximum LTV (loan to value)||Representative APRC variable||Monthly repayment amount||Total amount payable|
|United Trust Bank||10 years||£30,000||60%||9.4%||£359.24||£46,304.36|
|Pepper Money||10 years||£30,000||60%||9.6%||£363.98||£46,672.93|
The figures in this table are based on the representative example of a loan amount of £30,000 repaid over 10 years and based on a 60% LTV property as security. The exact loan amount, term and rate you are offered will depend on your credit history, your financial circumstances, how much you want to borrow and how long you want to borrow it for. The APRC (annual percentage rate of charge) displays the annual cost of the secured loan. The figures below include all charges, fees and other standard costs. It is calculated on the assumption that you keep the secured loan for the full term without the rate changing.
Best secured loan rates - £30,000 over 10 years - 70% LTV
|Loan provider||Loan term||Loan amount||Maximum LTV (loan to value)||Representative APRC* variable||Monthly repayment amount||Total amount payable|
|Pepper Money||10 years||£30,000||70%||10.0%||£371.96||£47,629.85|
|United Trust Bank||10 years||£30,000||70%||10.2%||£373.56||£48,022.62|
The figures in this table are based on the representative example of a £30,000 loan amount repaid over 10 years, but based on a 70% LTV property as security. The exact loan amount and rate you are offered will still depend on your credit history, current finances, how much you apply to borrow and how long for. However, you can see how the higher LTV changes the interest rate available and the total amount repaid. Essentially, as you have less equity in the secured asset, the debt has to be secured against a less valuable asset. As a result, you will usually pay a higher rate as this represents a higher risk for the lender.
Best secured loan rates - £30,000 over 15 years - 70% LTV
|Loan provider||Loan term||Loan amount||Maximum LTV (loan to value)||Representative APRC* variable||Monthly repayment amount||Total amount payable|
|Pepper Money||15 years||£30,000||70%||9.4%||£295.42||£56,170.94|
|United Trust Bank||15 years||£30,000||70%||9.6%||£297.18||£56,687.94|
Our final table sticks with the representative example of a £30,000 loan amount based on a 70% LTV property as security, but repaid over 15 years. Again, the rate and loan term you are offered will be individual to you, but in this scenario, you can see how the longer loan term affects the overall cost of the loan.
How to compare secured loans
It can be tricky to choose the best secured loan and the best provider from the multiple options available in the UK. The best secured loan for you could be from an online lender or broker, your local bank or a provider you already have a relationship with. The best way to compare options is to look at these key factors in detail:
- Repayment amount: You will need to be able to comfortably afford the monthly repayments. Missing repayments can lead to extra charges, and additional interest. It could also mean that your secured asset – which may be your home – could be sold in order to clear the debt.
- Interest rate: Interest rates on secured loans can be more complicated than on unsecured loans because you may need to pick between a fixed and variable option. You will need to be confident that a rise in interest rates will not make your repayments unaffordable. Also, keep in mind that the advertised rate will not necessarily be the rate that you are offered. Your personal rate will depend on your financial circumstances, credit history and the value of your secured asset. The rate you see online could be a representative APR, which is a figure the provider is able to offer over half of successful applicants. Read our article ‘What is representative APR?’.
- Loan length: The shorter the loan term, the less interest you will pay overall, but the higher each monthly repayment will be. Work out what is important for you and how best to structure repaying your debt. Some lenders will let you overpay your loan and clear the debt early. This could allow you to opt for the flexibility of a longer loan term with the hope that you will pay it off early. However, some lenders will charge you a fee to make additional repayments above a certain limit.
What affects the costs of a secured loan?
How much a secured loan costs will likely be an important part of what makes the best secured loan for you. Here are the major factors that will affect how much you pay to borrow the money you need:
- The value of your security: This is arguably the most important factor when it comes to the cost of a secured loan. The asset will need to be valued by the lender, with the size and cost of the loan you are offered dependent on the results of the valuation. If the secured asset is your home, or another property, the level of equity you have will be critical too.
- Interest rate: The rate your lender offers will dictate how much interest you will pay annually on your debt. This is often shown as an APR (annual percentage rate) figure, which will include compulsory fees. You may also see an APRC (annual percentage rate charge) figure. This is the total cost of the loan, including fees, over the life of the debt, taking into account what the new rate is expected to be after any initial term ends.
- Loan amount: The amount you borrow will affect your total costs, as a bigger loan will mean more interest. However, smaller loans often come with a higher APR than larger loans. This could make it tempting to borrow more than you need but keep in mind that borrowing too much could lead to problem debt and spiralling costs.
- Borrowing period: Taking longer to repay your debt will mean paying more interest overall but will make each monthly repayment smaller. You'll need to find the right balance that works for you.
- Credit score: This is less important with a secured loan than with an unsecured loan, but you will usually get a better interest rate if you have a history of being a good borrower. You can check how you will be viewed by lenders by regularly looking at your credit scores with the three main credit reference agencies. Learn how to check your score by reading ‘The best way to check your credit score for free’ and improve it with the tips in our article ‘How to improve your credit score quickly’.
How much can I borrow with the best secured loan?
In most cases, a secured loan will have a greater borrowing limit than an unsecured loan. This is because lenders are happy to offer you more money once there is the backup option of selling your asset if you cannot repay the debt.
The final amount you are offered with the best secured loans will be dependent on the value of the asset you put up as security, your borrowing history and how much you earn. Most lenders will also have an upper limit on what they will lend no matter the circumstances. You can expect mainstream lenders to offer loans as low as around £5,000 all the way up to £1 million, though some specialist providers may be able to offer you a higher or lower amount.
How much you can borrow, even with the best secured loan you can find, is less important than how much you can afford to repay and how much you need. Overstretching your finances can lead to missed repayments and a debt spiral that can be difficult to get out of. Stick to the amount you need to borrow and find the best secured loan for that sum. If you find yourself struggling with debt, take a look at our article ‘Where to get free debt advice’ to find free expert help.
How to apply for a secured loan
It is important to have all the relevant documentation to hand before you start your secured loan application. You will likely need:
Proof of identity (name and date of birth)
- Proof of address for the past three years
- Proof of income (including employer details)
- Recent spending details and existing financial commitments
- Documents relating to the asset you are securing the loan against (details of most recent valuation and level of equity)
You can then compare available deals by interest rate, loan amount, loan term and other factors to find the best secured loan for you. Once you have decided on a provider, you can begin the application process and provide the information listed above.
How long does it take to get a secured loan?
The length of time it takes to apply for a secured loan and get the money from the lender will vary from provider to provider. You can expect a timeframe of up to six weeks, but the accuracy of that will depend on the checks and valuations that need to be made to the relevant asset. If you are borrowing against your home, the lender will need to conduct a valuation and perform legal checks to ensure you are the owner of the property and confirm your level of equity. There will also be a credit check and an assessment of your income and financial commitments.
If your application is approved, the money could be in your nominated account within a few days. However, if your application is rejected, it is important to take the time to look into why you were unsuccessful. Rushing into a new application can damage your credit score and your future borrowing prospects.
What can I spend a secured loan on?
You can use a secured loan to buy almost anything, but there are a few important exceptions. The most common ways to spend a secured loan include making home improvements and debt consolidation. You could also use to money to pay for a car, fund a big holiday or cover the cost of a wedding.
Many secured loan providers will actively prohibit using the cash for anything illegal, while others will either ban or advise against spending the money in riskier areas like gambling or as a means to take on more debt, such as a deposit for a property purchase.
Pros and cons of a secured loan
Even the best secured loan may not be the right fit for your borrowing needs. Here are the main advantages and disadvantages of secured loans.
Pros of secured loans
- You can borrow larger amounts than with an unsecured loan.
- You may be offered a lower interest rate than an equivalent unsecured loan or a credit card.
- Your credit history will have less of an effect on the success of your application.
- Most lenders will offer longer repayment terms than with an equivalent unsecured loan.
Cons of secured loans
- Your secured asset could be repossessed if you fail to make your repayments.
- You are more likely to have to pay arrangement fees and early repayment charges than if you took out an unsecured loan or credit card.
- The longer repayment terms on secured loans can lead to paying more interest overall than with an unsecured loan on a shorter term.
- Many secured loans come with a variable rate of interest, which can push the cost of your loan up during your repayment period.
What are the alternatives to a secured loan?
If the best secured loans do not seem like the right borrowing options for you, there are other types of lending you could try.
Secured loans vs unsecured loans
Unsecured loans do not require collateral, but you can usually borrow more with a secured loan. The interest rate could be higher, but there is also less risk. We go into more detail on the differences in our article ‘Secured vs unsecured loans: Which is best for me?’.
You can also read more about unsecured loans in our article ‘What is an unsecured loan?’.
Secured loans vs credit cards
Credit cards are well suited to everyday spending and occasional big expenses, though the borrowing limit will be some way short of what is available with the best secured loans. Credit cards will likely be a good option for short-term spending or debt consolidation. We have more useful information in our article ‘Is it better to get a credit card or a personal loan?’.
Remortgaging to release equity from your home
If you already have an existing secured debt in the form of a mortgage, it can make sense to adjust that loan rather than take out a new one. Rising house prices and reducing your mortgage balance through your monthly repayments have the effect of increasing the amount of equity you own in your home. This can give you the opportunity to replace your existing mortgage with a new one in order to borrow more money. We cover this option in detail in our article 'Remortgage to release equity from your home'.