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How to Compare Secured Loans & Find the Right One

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Compare secured loans from over 200 lenders

Let’s say you have bad credit. Maybe you have no credit history at all. Perhaps your business needs a massive influx of capital to scale its operations and meet growing demand. Maybe you want to do major renovations on your home to update it and enhance its resale value.

Maybe you want to get a handle on your finances, and debt consolidation is the only thing that makes sense right now.

You might be wondering what all these scenarios have in common. The answer is – cash and a lot of it. The kind you can’t get simply by walking into a bank and requesting a personal loan – which would even be out of the question if your credit score is less than ideal.

Secured loans make sense in every way. They give you access to more significant loan amounts than what you would otherwise get with unsecured lending, plus you get to enjoy a lower interest rate and longer repayment term. The real issue lies in finding the right one.

This guide explores how to compare secured loans and find the best one. Get approved below for a secured loan in 24 hours:

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What is a secured loan?

Secured loans, also referred to as second charge mortgages or homeowner loans are a form of lending that allows prospective borrowers to access large amounts of money by putting up an asset they own as collateral to secure the debt.

The most common form of security used for these loans is property or home equity.

Some lenders also accept other types of collateral, such as vehicles, valuable art, antiques, and jewellery. The type of security you use to guarantee the loan depends on its value and the loan amount you seek.

Business owners can also put up assets that are critical for their operations when applying for secured business loans. It is not uncommon for commercial property, commercial vehicles, plant machinery and equipment, and even warehouse stock to be used as collateral for securing loans.

Some lenders also accept “soft assets” such as accounts receivable and unpaid invoices as collateral for secured loans.

A mortgage also technically counts as a type of homeowner loan since your home is used as security for the funds the lender advanced you to purchase it in the first place.

This initial “loan” is sometimes referred to as a first-charge mortgage. If you then use the equity you hold in the property to secure a second loan, then what you have is a second charge mortgage.

Secured loans come in many forms. Homeowner loans are secured against property. Car loan products or logbook loans are secured against vehicles. Bridging loans are a type of short term secured loan.

A bridging loan, sometimes referred to as a bridge loan, is designed to fill in the financial gap when buying a new property before disposing of the current one.

Ensure the lender you’re borrowing from is licensed and regulated by the Financial Conduct Authority and is listed in the Financial Services Register.

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What is the difference between secured and unsecured loans?

The key difference between secured lending and an unsecured personal loan is whether or not the borrower is required to put up an asset as collateral to secure the debt.

When a lender is assessing whether or not to approve you for an unsecured loan, they only have to go on your credit history.

It’s the reason why qualifying for a personal loan is easier for individuals with a good credit rating. A sterling credit history tells the lender that you are creditworthy and can be trusted to repay the loan on time and in full.

The downside to unsecured loans is that the maximum loan amount you can qualify for will generally be lower than what you would otherwise get on a secured loan. Since the lender uses your credit score to evaluate the credit risk you present to them, they are the ones that absorb the larger portion of the risk.

They mitigate this by limiting the loan amounts and the repayment term they offer to borrowers and charging a higher interest rate that would allow them to break even in the event a borrower defaults on their debt obligation.

On the other hand, secured loans present a much lower risk level to lenders since they have an asset they can dispose of should the borrower stop making the required monthly repayments. All they would have to do is repossess the asset, sell it at the going market rate, and use the proceeds from the sale to recover the outstanding amount owed to them.

Unlike unsecured loans, secured lending presents a larger risk to the borrower since they could lose their asset if they miss a payment. If you put up your home as collateral to secure the debt, failing to make a loan repayment could result in you becoming homeless.

However, this is always the last resort after all other efforts by the loan provider to collect on the bad credit loan have hit a snag.

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What are secured loans used for?

First off, the main reason why people take out secured loans is that they need larger amounts of money than what they would otherwise get through an unsecured loan. When a lender evaluates your application for a secured loan, they look at the value of the asset you’re putting up as collateral.

Then, based on the outcome of an affordability assessment, they work out what a manageable monthly repayment would look like for you and then reverse-engineer the calculation to determine the maximum loan amount you qualify for.

It is worth noting that even if you qualify for the full value of the asset you intend to use as security for the loan, most lenders will only give you a percentage of that value – usually in the 50-80% realm.

For instance, suppose you’re taking out a second charge mortgage on your property, and you hold £200,000 worth of home equity.

Even if an affordability assessment determines that you can afford the monthly repayments on a secured loan worth the full £200,000, the maximum most lenders will disburse to your bank account is between £100,000 and £160,000.

Either way, this figure is several times more than what you would qualify for with a personal loan.

secured loan conceptSecured loans are the go-to financing option for individuals who need a large sum of cash for capital-intensive projects.

We’re talking: a secured homeowner loan for major home renovations, business loans for expansion, a secured personal loan for real estate investment activities, debt consolidation if you have mounting credit card bills, personal loans, payday loans, student loans, car finance loans, etc. – basically anything that requires a huge sum of money.

Secured loans are also an excellent option for individuals with little to no credit history or those with poor credit with no alternative lines of credit available. Plenty of specialist bad credit lenders would be more than happy to approve you for a secured loan.

These loan providers are more interested in the value of the asset you’re putting up as collateral and your ability to keep up with the monthly repayments than they are in your adverse credit history. Provided that you have a regular source of income from business or employment, you should have no trouble securing the funding you need.

The same can’t be said for unsecured loans.

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What do you need to know when comparing secured loans?

There are three critical things you need to keep in mind when comparing secured loans:

Your present financial situation

Can you afford the loan in the first place? Start by working out how much you need to borrow and the associated monthly repayment amounts. Next, work out how much disposable income you have left over after you pay off your monthly expenses and any other existing debts you have.

Then, check whether this amount is enough to cover the projected monthly repayments. If not, recalculate the loan amount you can afford based on your current financial situation.

Your loan-to-value ratio

If you’re using your home as collateral for the loan, lenders will look at your property’s current market value versus the balance you owe on your mortgage.

The difference between the two values represents the amount of home equity you hold and is what the lender will be able to recover if you default on the loan. This will influence the loan amount they’ll approve you for.

The annual interest rate

The loan interest rate is what determines the total cost of borrowing. The interest rate can be fixed or vary throughout the lifetime of the loan. Fixed-rate interest means that the Annual Percentage Rate of Charge (APRC) will not change throughout the loan term.

Variable rate interest means that the APRC will fluctuate in line with the Bank of England base rate. Keep this in mind when comparing the interest rate advertised by different lenders.

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How to find the right secured loan

To find the best secured loan, you need to compare what different lenders bring to the table. You need to be able to compare as many secured loan providers as possible to ensure you’re getting the best deal on the market.

Your best bet would be to use an experienced loan broker to do the heavy lifting for you. You can leverage their wide network to get the best deals you would otherwise have limited access to. They’ll present you with various options based on your specific financial needs to ensure you get the right secured loan.

There’s no amount of research you can do on your own that can beat the deep insider knowledge an experienced broker has of the UK lending market and the wide reach they have through their panel of lenders.

Get expert help from a trusted secured loan broker

Finding the right secured loan to fit your current financial needs is a complex process with many moving parts.

You need to find the right lender; make sure you’re getting the most competitive deal in the market; check that the associated costs of borrowing make sense; work out whether you can afford the monthly repayments; find out what happens if you repay the loan early – the list goes on.

Without expert debt advice, you’re shooting in the dark.

FAQ

What is a second charge mortgage?

This is a form of secured borrowing where an individual with an existing mortgage on their property uses the equity they hold to secure a second loan on it, otherwise known as a “second charge.”

If the borrower defaults on the loan, the initial mortgage provider has a first charge on it, meaning they get priority when recouping their losses. The second lender has a second mortgage charge, meaning they can go in after and recover what’s left.

Can I use a secured loan to improve my credit score?

Yes, you can. As long as you keep up with the repayments on any open accounts in your credit file, meaning no late or missed instalments, your credit score will start to go up.

Can I take out multiple secured loans at the same time?

Yes, you can. If you still have equity you can use to secure more loans, it is possible to take out multiple secured loans simultaneously. That said, it might be better to consolidate them into a single monthly repayment.

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