Secured loans

Secured loans – also known as ‘homeowner loans’ or ‘second charge loans’ – are predominantly aimed at homeowners who are unable to get a personal loan elsewhere. This is often due to a non-existent or bad credit rating. These types of loans also work well for homeowners who are looking to borrow significantly more than an unsecured or personal loan can offer.

Secured loans can help fund a number of things including home improvements, holidays but most commonly as a method of consolidating debt.

As your home is used as the security for the debt, secured loans allow you to borrow a much larger amount of money with a lower interest rate in comparison to unsecured loans. However, lenders do consider secured loans to be of greater risk to borrowers than an ordinary bank loan. This is because missed payments can result in the loss of your home.

If you do choose to go down this route you should ensure that you only borrow what you know you can realistically pay back each month.

If you are looking to borrow a smaller loan amount (less than £15,000) then a personal loan might be a safer option for you as you won’t run the risk of the lender reclaiming your home. However, you should be aware that the lender can still put a charge on your property if you fail to make monthly repayments.

The Citizens Advice website provides great information on how charging orders work.

As with any type of loan, there are a number of advantages and disadvantages that you should take into consideration:

Advantages of secured loans

• You don’t need a perfect credit rating.
• Rates can be low, especially when compared to some unsecured personal loans.
• Repayment periods can be longer, giving you more time to repay the loan.

Disadvantages of secured loans

• You coud be at risk of losing your home if you don’t continue to make payments on time.
• Early repayment penalties could increase the cost of the loan.
• Rates can often be higher than a first charge mortgage.

A secured loan gives you the opportunity to borrow money even if you have a bad credit history. This is because decisions for these types of loans aren’t made solely on your credit score. If you are a homeowner, it can be easier to take out a secured loan compared to an unsecured loan or credit card. The total amount you can borrow can be much higher as well as the risk to the lender is lower than other loan types.

You might be in a position where you’ve had financial difficulties but can now comfortably afford to pay back a loan. A secured loan can give you the opportunity to do this even if you have a poor credit history. Taking out this type of loan can also help you to improve your credit score for the future. By demonstrating your ability to repay commitments, this could increase your options of refinancing to a more competitive rate in the future.

If you have a bad credit history and need mortgage advice, you can read our bad credit guides here. Or have a look at our other bad credit mortgage options.