Beginner’s Guide to Secured Loans



If you’re in a financial bind or planning to make a major investment and you need financing, you can take out a personal loan. When it comes to personal loans, options are quite aplenty. Most unsecured loans, for instance, are quick and easy to avail. But if you’re looking to borrow a large sum, secured loans are the more appropriate option. And if this your first time taking out a secured loan, here is a quick beginner’s guide to help you along:

What is a secured loan?

Let’s start off by defining what exactly is a secured loan. As the name suggests, secured loans are personal loans that require a security, typically your home or your car or any eligible property you own. The loan is secured against said asset. Depending on your preference and the value of your security, you can borrow at least £10,000 payable in one to 25 years or longer.

Since secured loans involve a collateral, they are less risky for lenders hence the lower interest rates. There’s just one major downside, however. In the event that you can’t repay the loan, your lender can repossess your property to recover their loss.

What are the types of secured loans?

There are several types of secured loans offered in the UK market. The most common of which are homeowner or home equity loans, mortgages, car loans and some debt consolidation loans.

Mortgages are loans that are secured against the property you are buying. If you’re hoping to buy your first home, for example, your lender, which in most cases is a bank, can foreclose the property if you fail to keep up with the mortgage payments. This type of loan typically takes 15 to 30 years to pay. You’ll also need to provide a down payment equivalent to 10 to20% of the property’s selling price.

Car loans work similar with mortgage loans where the car you are buying serves as collateral. This type of loan is perfect for those who are in the process of buying their first car. If you only have 10 o 20% of the down payment, a vehicle loan can help you get the car that you want. Like with mortgage loans, you’ll get tied with monthly repayments, which can lead to vehicle repossession if left unpaid.

Though not all debt consolidation loans are secured, this is one type of loan you may want to check out if you are planning to consolidate all your other debts into one monthly repayment. Debt consolidation loans may be secured against your home, which again means repossession in the event of nonpayment.

Other types of secured loans include title loans and savings-secured or CD loans. With title loans, you take out a loan against a fully paid vehicle. These are also known as logbook loans where you hand over your car’s V5 document to your lender. It’s now quite popular in the UK for its promise of quick cash especially for people with bad credit. No credit checks are run on applicants hence faster and super easy to avail that mortgage loans or vehicle loans.

Another option for people with poor or little credit history is a personal loan secured against CDs or savings accounts. When you opt this route, what happens is that your lender, usually the bank, freezes or holds the funds in the account. You can borrow up to 95% of your CD or savings funds while the 5% is what your lender earns for interest and other related loan costs.