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Secured loans

A Guide to Secured Loans

The two main types of loans to consider when borrowing money are:

  • secured loans

  • unsecured loans

A secured loan is so called because the lender requires the borrower to put up a valuable asset to be used as security or collateral in the event that repayments cannot be made.

The kinds of assets that borrowers generally offer up as collateral include:

  • their home or other type of property

  • their car

  • other valuables such as a piece of art or expensive jewellery

Putting up your own home is by far the most common type of asset that is used as collateral for secured loans. This is risky; if you default on your repayments, you could end up losing the roof over your head. As there is a form of security attached to a secured loan, there is no limit to the amount that can be borrowed as long as it does not surpass the value of the collateral being used. Secured loans can be used to finance practically anything from a new car, dream holiday, or home renovations. In contrast, an unsecured loan does not require any collateral. You, however, must have a flawless credit history to obtain an unsecured loan.

Who offers secured loans?

Any of the following will be able to make you an offer of a secured loan to suit your needs:

  • Online loan providers

  • Banks and credit unions

  • Specialist lenders

 Many secured loan borrowers are attracted to using the services of online loan providers because:

  • They can offer more favorable deals with lower interest rates.

  • They can give you an instant or fast decision if your secured loan application has been approved.

In order to apply for a secured loan online, you will probably be required to complete an online enquiry form, providing details to describe the purpose of the secured loan, and the loan amount required.

As you are securing the loan against an asset, you will also have to provide details of this collateral which can be complex. On approval, funds are usually transferred to your chosen bank account quickly and efficiently.

Certain specialist lenders are prepared to provide secured loans even to high-risk borrowers such as some self-employed people or students as long as they have a piece of collateral to offer up as security.

Some useful advice about taking out secured loans:  

  • Do not be tempted to borrow more than you can realistically afford.

  • If possible, repay the full amount of the secured loan as soon as you can, provided early repayment does not involve a penalty.

  • Always read the full terms and conditions before signing the loan contract.

  • Consider purchasing appropriate insurance coverage for the secured loan to protect you against unexpected illness or unemployment.

  • If you start having financial difficulties and cannot make your regular repayments, do not bury your head in the sand. Act promptly and contact your lender for support and advice.

Conclusion

It is always a good idea to shop around and carefully review the following factors on your secured loan:  

  • repayment terms

  • interest rates

  • penalties and additional fees

Understanding all these details will help you get the best secured loans available on the market.

Compare the best personal loans

 
 
 
 
 
 
 
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