Compare Secured Loans

Although secured loans come with certain advantages, there are also several drawbacks for customers to be aware of:

• Your home is at risk: if you default on the loan, the lender has the right to repossess your home and sell it. If you are struggling with the repayments, you should speak to your lender to see if arrangements can be made to help you.
• Higher interest rate: the lowest interest rates are likely to be limited to customers with good credit scores, higher incomes and lower LTV ratios. Customers with poor credit scores, lower incomes or requiring a higher LTV ratio, are likely to pay higher interest rates.
• Variable interest rates: there is typically a choice of variable or fixed interest rates. There is the risk that variable interest rates will increase, particularly given the number of increases to the base rate made by the Bank of England this year.
• Maximum LTV requirements: the lender will consider how much equity you have in your home to cover the secured loan. Many of the secured loans in our ‘best’ table have maximum LTVs of 80-85% meaning that, if you already have a first mortgage near this level, you are unlikely to be able to borrow additional money.
• Long repayment period: although you will have to repay a lower amount each month under a longer loan period, you will pay more interest overall.
• Early repayment charges: if you repay your loan early, some providers will charge an early repayment fee
• Arrangement fee: unlike unsecured loans, there are typically arrangement fees on secured lending. These might be around £500 to £1,000, for example. There can also be broker fees if you take your secured loan through a broker.

While an initial fixed rate might offer lower monthly repayments at the start of a secured loan – and enable you to budget – early repayment penalties typically apply during this period. This means the decision of whether to take a fixed or variable secured loan will partly depend on how long you need the borrowing for.

At the end of your fixed rate term (fixed rate deals typically run for two, three or five years) borrowers will be moved on to the secured lender’s variable rate, also known as the reversion rate. This could be much higher than the fixed rate which will mean a rise in monthly repayments. 

Many borrowers will choose to repay their secured loan at the point at which the initial fix runs out – or roll up the debt into their primary (first charge) mortgage when they come to remortgage.

The benefit of taking a variable rate secured loan deal is that they are usually free of early repayment penalties – although the interest rate you pay is likely to be higher.

These vary by provider, but many require a minimum income level of around £16,000 to £20,000. Some will lend to retired people, provided that their annual income from their pension meets this criteria.

As discussed above, most secured loans will lend up to 80-85% of the value of a property, when combined with the original mortgage. This may limit the ‘headroom’ available to borrow against.

Most secured loans carry an arrangement or product fee, which typically varies from £500 to £1,500, or a percentage of the value of the loan.

For providers that only offer secured loans via a broker, customers will also have to pay a broker fee which is typically around 10-12% of the value of the loan. However, some brokers charge a lower fee than this or a flat rate fee.

Our secured loan partner loan.co.uk charges a broker fee of £1,770 on a £30,000 loan for example.

A valuation of your property (the security) will also be required. The cost of desktop valuations are often covered by the product or broker fee but if an in-person valuation is required, customers may have to pay around £100 to £300 extra.

When the loan is fully repaid, customers will usually pay an exit or ‘discharge’ fee of around £100. Other fees may also be charged, including fees for default, funds transfer, transfer to a new property and legal costs.

A secured loan can be used to provide the funds for a wide variety of items including home improvements, debt consolidation, paying for holidays, a wedding or a car, a deposit for an additional property purchase and school fees.

According to specialist broker Loan.co.uk, the typical amount borrowed for a secured loan is £50,000, with the majority of people borrowing the money to consolidate existing debt, such as credit cards, or to fund home improvements.

Although the average loan repayment term is 15 years, on the whole, the most commonly taken is between two to five years according to the broker – until such a time as people can remortgage to a higher amount or repay consolidated debt. A typical LTV is around 75-80%.

A secured loan may be a cheaper option for those who have a high early repayment charge to redeem an existing mortgage early – this can be the case even once potentially higher interest rates on the second mortgage and arrangement fees have been factored in.

Lenders will want to see evidence that borrowers can afford monthly repayments at the point of application. Homeowners already struggling to keep up with repayments on an existing mortgage, should not apply for an additional secured loan.

As secured loans can last as long as 35 years, choosing a secured loan to consolidate smaller debts could result in you paying more interest in the long-term, even if the monthly payments are lower.

Secured loans can be paid off early, but most lenders levy an early repayment charge (ERC) or early redemption fee if the loan is repaid in full before the end of the loan period.

The ERC will vary between lenders, ranging from 1% to 5% of the outstanding loan balance. The ERC will usually be higher towards the beginning of the loan period as the lender is ‘losing out’ on the interest payable on the loan for a longer period. 

Some lenders also charge an administration or discharge or exit fee on early repayment (typically a flat fee of around £100).

Lenders should provide details of the costs involved with early repayment on request. This allows borrowers to weigh up the cost of repaying the loan early against other financing options, such as a lower interest or unsecured loan. 

Many lenders also offer the option to overpay on the loan, typically around 10% of the outstanding loan per year, without penalty.

APRC stands for annual percentage rate of charge. It is a way of showing the full cost of a secured loan over its lifetime, including the annual rate of interest charged and any associated set-up fees, such as broker fees or arrangement fees. 

The APRC can be a better way to compare different mortgage and secured loan deals as it is a more detailed representation of the actual or total cost of the loan.

However, the APRC is a measure of the rate or cost of the secured loan over the life of the loan – this could be over 25 or even 30 years, for example. In reality most borrowers with secured loans will look to repay it or remortgage – moving and rolling it on to their first charge mortgage – before the end of the term.  

The APRC used in our examples above for comparison purposes is taken over a loan term of 15 years (180 months).

This depends on your personal and financial situation and what you want the loan for.

While an unsecured loan doesn’t require collateral (so your home is not at risk if you can’t meet the repayments) you can’t usually borrow as much, while the interest rates could be higher compared to secured loans.

Secured loans where you use your car as security are known as logbook or V5 loans.

The V5 form is the document that shows the registered owner of a particular vehicle.

With a logbook loan your car is at risk of repossession if you can’t keep up with the repayments on the loan.