Secured Loans: A quick guide for customers

In the event that the loan isn’t paid according to the terms, the lender takes the collateral as payment. Home or property loans, also known as mortgages, are the most popular form of secured loans . If loan is taken out against a property that already has a mortgage on it, it’s referred to as “second charges”, with the first loan considered to be the “first charges”.

There are many types of secured loans available to consumers for dozens of different reasons including home purchase, home improvement or repairs, and debt consolidation. The loan amount typically ranges from £3,000 to £50,000, but can sometimes find a lender for as much as £250,000 on an appropriately secured property. The amount borrowed is then repaid on a monthly basis for a predetermined amount of time, typically between 3 and 25 years. Repaying the loan early may result in a penalty or extra fee attached, so be sure to consult your lender prior to signing any loan agreement.

Secured lenders charge you interest on your loan known as the APR, or annual percentage rate, based on your credit history, loan amount, and the value of your collateral (typically your property value). Second charges are also based on the above, but also include the amount of equity available in the property. The higher your credit rating and collateral value, the lower your APR. If your credit history has a blemish or two, or you already have quite a few financial commitments, your APR and monthly payment will be higher than average. This is based on the lender’s view of your ability (or possible inability) to repay the loan.

If your credit is strong, there are loan programs available for borrowing up to 125% of the property’s value. But no matter your credit rating, it’s imperative for you to get several quotes for your loan needs, both from the same and different lenders. There’s more than one program for your individual situation (such as fixed and adjustable APR’s, length of repayment, etc.), and shopping around is the best way to find competitiveness in the industry, granting you the best rate and terms.

But before you agree to a particular loan program, be sure that you can afford to pay the new monthly payment. If you’re interested in a secured loan for bill consolidation purposes to combine all of your smaller credit card bills into one payment, ask yourself if you have the self-discipline necessary to refrain from using your newly paid-off credit cards and ending up in the same financial situation all over again (only this time with a secured loan payment in addition to your credit card bills). It may be necessary to cut up and/or close these accounts to help you resist temptation. In any case, make sure you complete due diligence and educate yourself as to what you’re committing to.