To obtain a secured loan, you must use one of your major assets, such as your home or car, as collateral, which provides security for the lender in completing the transaction. This enables the financial institution lending you the funds to collect any outstanding balance if you default in making your repayment. As a rule, the interest rate on such a loan is usually lower than on a loan that is unsecured.

Secured loans vs. unsecured loans

The monthly payments on a secured loan are generally more affordable because the term of the loan is extended for a lengthy period of time, but the overall cost is often significant.. Also, if you have a past history of financial problems or your credit rating is low, you will find it easier to have your application accepted because of the collateral you provide. However, it may not be arranged as quickly as an unsecured loan, and there may be some additional charges, including legal fees or valuation, as well. Note also that in obtaining a secured loan, you will be assuming a substantial risk because the lender has the right to foreclose on your property to recoup its loss if you fail to keep your part of the agreement.

Factors affecting the availability of secured loans

Today, these loans are a popular way for borrowers in the UK to obtain credit, and the trend is expected to continue. Most applicants realise that a secured loan is a convenient way to draw upon the equity in their home when conditions in the housing market are favourable. However, the reverse is true when housing prices decline and equity levels are lowered. In addition, you will only be able to obtain the best terms for your loan if you have an excellent credit record, completely devoid of arrears, CCJs or defaults.

What to do before you apply

You will also want to do some comparison shopping when you are looking for a secured loan, but when you do, be aware that several brokers and financial institutions will be conducting multiple searches at the same time in order to verify your credit rating.