A brief guide to secured loans

Secured loans tend to be the easiest form of borrowing to arrange, even for those who may have a less than perfect credit record. This is because a secured loan requires the borrower to put down collateral for the money borrowed, so there is less of a risk involved for the lender. The security most often offered is the borrower’s property, or their portion of equity in the property that is owned by the borrower. That makes this type of loan far less risky to the lender than a high-value personal loan, for example, where it would be much more difficult to recover the loan in case of default by the borrower.

Because of that lack of risk, borrowers are much more amenable to granting secured loans in the UK for just about any purpose, safe in the knowledge that, in case of default, they have a secure way of recovering their money. Examples of what a borrower can use a secured loan for include: loft conversion, addition of a conservatory, once in a lifetime holiday, buying a car, boat or other luxury item and the consolidation of debts. Those are the most frequent uses of a secured loan, but certainly don’t represent an exhaustive list. And because property is offered as security, the interest rates for secured loans are usually lower than other forms of personal loans. So, this type of borrowing is particularly attractive to applicants who need a low interest loan but may not have the best credit history.

Secured loans are a particularly useful tool when it comes to debt consolidation. A prospective borrower may have existing loans and perhaps credit card debt, or other unsecured lending that they wish to clear. By consolidating their loans over a longer term the applicant will generally replace many higher payments to different lenders with one lower monthly payment to one lender. This makes it far more convenient for the borrower and, in many cases, makes a huge difference to their lifestyle.

Another advantage for a prospective borrower is that many secured loans don’t attract arrangement or punitive fees that are charged on a standard remortgage, making them a much more attractive proposition. Secured UK loans are offered by major lenders, such as high street banks and building societies, as well as specialist lenders. If you are in the market for a secured loan, make sure that you get quotes from many lenders before you submit an application because even though they are competitive products, interest rates will vary.

Andrew regan is a freelance online journalist