A secured loan, also known as a homeowner loan, are usually set against an asset. It uses your property as security against the amount you are looking to borrow. This can be an option if you need to borrow a large sum of money and have a poor credit rating. However, it’s important to understand the risks when opting for this type of loan… If you fail to keep up with the repayments, the lender could seize your property.
What Is A Secured Loan?
A secured loan is a loan which the borrower pledges an asset as collateral for the loan. This is to secure the loan so if you cannot repay your loan, the lender will have the right to take the asset used as collateral.
Secured Loans vs Unsecured Loans
An unsecured loan (or a personal loan) isn’t attached to your home or any other asset. Because there’s no collateral for lenders to claim if you can’t repay them, unsecured loans are typically considered the higher risk for lenders. So you generally need to have a good credit score to be approved for one. As this reassures lenders that you’re likely to pay them back.
Just as with a secured loan, when you take out an unsecured loan you’ll agree to certain terms for repayment, including an interest rate and how long you’ll have to pay back the debt.
Secured Loans For Bad Credit
Secured loans can be a better option for those with bad credit. Typically, you are more likely to be approved for a secured loan than an unsecured as some lenders may see you as a higher risk if you have bad credit. Although, loans can actually help you improve your credit score. It’s simply a case of ensuring you fulfil your responsibilities, make every payment on time and perhaps even overpay where possible. However, there may be more effective and sensible ways to improve your credit score than to take on additional debt.
What Happens If I Miss A Repayment?
In a worst-case scenario, missing repayments on your secured loan could lead to the repossession of your home. However, it is possible to speak to your lender if you feel that you might not be able to make repayments. As some will be willing to re-negotiate your situation and give you another chance.
Secured Loans UK
Luckily, some of the lenders which we work with can offer you a secured loan. Although they are not in as high demand as unsecured loans, they are still available. Simple Personal Loans works alongside the UK’s largest panel of direct lenders to ensure you can get the loan you desire.
Secured Loan Calculator
On our home page, we offer a calculator to help you get a rough guide on the price of your loan before you apply. Although, this applies to both unsecured and secured loans. So, when you get a set amount from your lender, the chances of it matching up are low. This is because it all depends on your personal information including credit reports, scores and income.
Alternatives to a secured loan
Unsecured personal loans usually offer between £1,000 and £35,000 and is a popular alternative to secured loans. Not only does this option avoid putting your home at risk, but it may also come with lower interest rates.