Personal loans and secured loans are completely different forms of borrowing. With a secured loan the debt is linked to your asset (usually the home).

A personal loan, also known as an unsecured loan, is not protected by collateral, therefore if you are late with payments or default, your lender cannot automatically take your property, but can go through other methods to reclaim the debt, such as going through the courts.

You don’t need to be a homeowner to be eligible for a personal unsecured loan, but you do need to have a fair credit score. You borrow from a lender or bank and agree to make regular payments until the debt is paid off.

As the loan is unsecured, the interest rates tend to be higher than with a secured loan, and you may incur extra charges or fees if you miss payments. This can negatively affect your credit rating, making it more difficult to successfully apply for an unsecured loan in the future.

The two main types of unsecured loans are credit cards or store cards, and fixed-interest installment loans such as personal loans, student loans, etc.

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A secured loan could be suitable for those that have a poor credit rating or no credit history, which could make them ineligible for a personal loan. The main condition is that you are a mortgage holder or homeowner (view our homeowner loans for more information) that has enough equity in their home to act as security for the loan. Also, if you are tied in on your current mortgage with your lender and wish to avoid paying early repayment charges to switch lenders as an alternative to a further advance a secured loan may be available to you to borrow additional funds.

There are a number of reasons why you may be considering a secured loan, as you have the potential to borrow large sums of money. You could use a secure loan for any legal purpose such as the following:

• Home improvements, necessary repairs, and light refurbishments, renovations, or extensions.
• To raise the deposit needed to purchase a second property.
• To consolidate any other significant debts into one monthly payment with a lower interest rate.
• Repay loans on government-funded schemes, such as help-to-buy.
• For a capital injection into your business, for the likes of expansion, updating equipment, etc.
• Any other reasonable costs, such as weddings, education costs, etc.
• If you are unable to borrow further monies from your mortgage provider.
• If you have a high early repayment charge on your mortgage and need to borrow additional funds.

Take a look at the advantages and the disadvantages of a secured loan, to help you to make a decision if it is the right loan for you.

Advantages

• Ability to Borrow More: With a secured loan you can potentially borrow a lot more money than you can with an unsecured loan. It can be difficult to borrow more than £25,000 with an unsecured loan, but secured loans can be as high as £100,000 or even more. A loan this size can prove very useful if you have a big renovation or home improvement project, education costs, or medical bills, etc.
• Lengthier Loan Terms: You tend to be able to get longer loan periods with a secured loan, which can make the monthly payments more affordable than with an unsecured loan.
• Good for Those with Poor Credit: As a secured loan uses your home as collateral, it is a lower risk for the lender. This means that it is easier for those with bad credit or no credit history to successfully apply for a secured loan.

Disadvantages

• Larger Risk: An unsecured loan comes with significant risk. If you default on your payments, your lender can repossess your home to recover the debt. You may be able the work out an agreement with your lender by getting in touch with them as soon as you realise you’re having difficulty meeting your monthly payments. Furthermore, any defaults will be recorded on your credit report, which can negatively affect your credit score. This may affect your ability to access loan services in the future.
• Pay More Interest: You do have the benefit of lower monthly payments for a longer term, but this comes with its own disadvantage. As interest is charged monthly, you are likely to pay more interest overall – i.e. the more months of your loan term, the more interest you will pay.
• Early Repayment Fees: If you want to pay the loan off earlier than your agreed loan term to reduce the amount of interest, you may be subject to early repayment fees.
• Broker fees may be higher: a mortgage broker may charge a fee for their services, while a secured loan fee can often be higher than this. Typically, an unsecured personal loan comes with no additional fees (other than interest), so remember to take into consideration that there will be a higher fee for a secured loan.

As a secured loan puts your home at risk, it should not be taken out without knowing everything you can. Before applying, these are things that you should consider:

• Your Financial Status:  If you don’t keep up with the monthly payments of a loan, you risk losing your house. Therefore, you should carefully consider what you can afford to pay on a monthly basis, taking into account current and future expenses. If you are not confident that you can make the monthly payments, consider if you can borrow a lower amount or if you even need the loan at all. Speak to one of our secured loan experts who can help you get you to work out what you will be able to afford and the perfect length of the term.
• Loan-to-value Ratio: Your lender will take into account the amount of equity you have in your home, which is the difference between the value of your home and the amount you still owe on your mortgage. This lets your lender know how much money they could recover should you not keep up with your monthly payments. Generally speaking, the more equity you have in your home, the more you will be eligible to borrow.
• Interest Rates: Secured loans tend to have a fixed interest rate, so it is important to consider any potential raises in interest when determining what you can afford. Furthermore, when you are looking at secured loans, bear in mind that the advertised interest rate may not necessarily be what you will get. Your actual interest rate will depend on the amount you want to borrow, your loan term, the value of your collateral, and your credit score.
• The Loan Term: The shorter your loan term the higher your monthly payments will be, but the less interest you will pay over the course of the loan. The longer the loan term the lower your monthly payments, but the more interest you will pay. It is important to weigh up your options with what you can afford, before deciding the length of your loan.

A secured loan is likely to have a higher interest rate than your mortgage, however, there could be other fees and charges to pay, which may include:

• Lender Arrangement Fee – To set up the secured loan, lenders sometimes charge fee’s, these can be separately or added to the loan.
• Broker Fee – This can be paid separately or added to the loan
• Valuation Fee – Sometimes there may be a valuation fee to pay, but not in all circumstances, if there is a valuation fee, Loanable will pay it, there will be no upfront costs to our clients.

A secured loan expert will be able to give you more information on the fees that you can expect to pay and when you will need to pay them. Speak to a member of the Loanable team today.

Your first step in getting a secured loan is to approach your existing mortgage provider and see what they can offer you. Your mortgage provider may be able to offer you additional borrowing if you meet affordability and have a good record of making your monthly payments with them. Remember to check the terms and conditions of each interesting loan carefully.

If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, complete our quick and easy quote form at Loanable who can work with you to find the best deal for your needs and circumstances.