A secured loan is any borrowing that uses an asset — most commonly your home — as collateral. Because the lender has the security of the asset backing the loan, they are typically willing to lend larger amounts at lower interest rates than unsecured loans. However, the critical risk is that your property can be repossessed if you fail to keep up repayments.
Mortgages are the most common type of secured loan, but the term is also used for additional borrowing against your property, such as second charge loans. Secured loans can be used for a wide range of purposes including home improvements, debt consolidation, or large purchases.
Secured loans are regulated by the FCA when they are secured against your home. Terms can range from 3 to 25 years or more, and loan amounts from a few thousand pounds up to several hundred thousand, depending on the equity available in your property.
You own a home worth £350,000 with a £200,000 mortgage. You take out a secured loan of £30,000 over 10 years at 5.9% for home renovations. Your monthly payment is approximately £331. If you fail to make payments, the lender could ultimately seek to repossess your home to recover the debt.
Key Points
- Backed by an asset (usually your property) as collateral
- Typically offers lower interest rates than unsecured loans
- Larger borrowing amounts available compared to unsecured borrowing
- Your home is at risk if you cannot keep up with repayments
- Regulated by the FCA when secured against a residential property