What is a Secured Loan (and How Can I Get a Good Deal)?

The term ‘secured loan’ is used in reference to any type of loan that is secured against the borrower’s assets. A typical example of this would be a mortgage, which is secured against the applicant’s home.

But this is just one of many different types of secured loans available, some of which can be secured against a much broader range of valuable assets. From homeowner loans to secured commercial loans to bridging loans, asset ownership can open the door to a long list of secured lending products.

Who can take out a secured loan?

Flexibility and accessibility are two of the biggest points of appeal for secured loans. If you own your own home or a business property, you are almost guaranteed to be eligible for a secured loan.

The amount you can borrow will be determined by how much equity you have tied up in your home or other assets. Lenders typically restrict their secured products to a maximum LTV (loan to value) of 90%.

This means that if you have £200,000 equity in your home, you may be able to borrow up to £180,000.

How can I get a good deal on a secured loan?

Irrespective of the type of secured loan you apply for, the key to getting a good deal lies in adopting a proactive approach.

Specifically, the five tips and guidelines below could help you secure a competitive deal from a top-rated lender:

• Never pay broker fees: Working with an established broker can simplify the process of getting a great deal on a secured loan. However, the only brokers worth doing business with are those that do not impose fees on the applicant. The whole point of working with a broker is to get a better deal, so it makes no sense to work with a broker and ultimately end up paying more. If broker fees are payable, apply elsewhere.

• Borrow at a lower LTV: The tendency among secured loan applicants is often to apply for the maximum sum they can borrow. While it can be tempting to take out a loan larger than you need, this can also pave the way for elevated borrowing costs. Lower LTVs almost always mean significantly lower interest rates and, in some instances, reduced fees. Always remember that secured loans are paid as financial products, meaning that the more you borrow, the more you can expect to pay in return.

• Improve your credit score: If doing so is viable, taking a look at your credit score with the aim of improving your profile is worth doing. Your credit score will play an instrumental role in determining how much you are charged, by way of both interest and additional borrowing costs. If your credit score is on the low side, you may need to target specialist lenders who offer ‘ subprime’ loans for poor-credit applicants. If in doubt, delay your application until you have sought advice. Remember that each declined loan application could further affect your credit score.

• Consider short- and long-term options: Interest rates and borrowing costs are also tied to the length of the loan repayment term. On one side of the scale, you have the traditional mortgage—repaid over the course of several decades, amounting to a major long-term expense. On the other hand, you have secured bridging loans, designed to be repaid within a matter of months and charged at rates as low as 0.5% per month. Always remember that the faster you repay your secured loan, the less you will pay for the facility.

• Always get multiple quotes: It is always advisable to get at least a handful of quotes from different providers before making your final decision. This will give you a good idea of the options available while helping you secure a competitive loan from a reputable lender.

What are the downsides of secured loans?

Before applying for a secured loan, it is important to carefully consider the two main drawbacks of secured lending:

1. You need to own assets of value to be eligible for a secured loan.
2. Your home is at risk of repossession if you do not keep up with your repayments.

Organising an obligation-free consultation with your preferred lender is therefore essential before committing yourself and your assets to a secured loan of any kind.