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More on this topic
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What to do & where to get help
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Secured loans
They can help you manage debt – but you need to be very careful
Updated 9 December 2024
A secured loan is a bit like a mortgage – indeed, they’re often known as 'second mortgages'. Their main characteristic is they’re secured against your home, so if you don’t pay, the lender could repossess your home and sell it to get their money back. That’s why it’s important to think carefully before taking one out. This guide takes you through the pros and cons (and the alternatives) to help you decide if it's right for you...
What is a secured loan?
A secured loan is where you put up some kind of security – such as your home – when taking out the loan. This is why they're often known as homeowner loans – if you don't have a home to put up as security to back the loan, you won't be eligible to get one.
Security can sound good, but...
Secured loans give the lender security, not you
The most important thing to know is that if you don't or can't pay the loan back on time, the lender can apply for a court order to sell your home to get back any money it's owed.
Taking out a secured loan is an option if you're looking to consolidate debt, or make home improvements. Yet it's worth considering alternatives before deciding which is the right path, and we've more help on this below.
Why would anyone want a secured loan?
People tend to look at secured loans because:
They're often easier to get. Unsecured loans are almost always cheaper for those with decent credit scores, but secured loans provide lenders with, well... security, so they're more willing to lend to poor credit scorers. Yet if you're being quoted 10%+ on an unsecured loan, it may be cheaper to get a secured loan - it's often at least worth checking.
Bigger borrowing is possible. The maximum unsecured loan is £50,000 (or £25,000 with some providers) yet secured loans can be £100,000 or higher (the amount you can borrow depends on what proportion of your home you own, and how much your home is worth).
- You can borrow over a longer period. Secured lenders prefer loans to last longer to help offset hefty set-up costs, usually from five to 20 years. This means they can offer low monthly payments – especially tempting for those already struggling with loan and credit card repayments. But...
Don't get sucked in by claims of "manageable payments". Consolidating can reduce monthly repayments but it does this by making you borrow for longer, which can substantially increase the total interest repaid.
The table illustrates this clearly...
The effect of borrowing longer on interest on a £10,000 loan at 10%
| Term | Monthly repayment | Total repayment | Total interest cost |
| Five years | £212 | £12,720 | £2,720 |
| 10 years | £132 | £15,840 | £5,840 |
| 20 years | £96 | £23,040 | £13,040 |
As you can see, the longer the loan is, the less the monthly repayment. However, borrowing for longer allows a lot more interest to rack up. This is why, contrary to glossy TV ads, secured loans aren't an easy option for those with heavy debts. A home isn't something to gamble with... only consider this if you're sure you can repay, and you can minimise how long you borrow for.
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MSE's Credit Club shows your real-world credit power – which translates to acceptance for credit cards, loans & more – and explains how to improve things.
MSE's Credit Club uses a new Eligibility Rating which combines the THREE crucial factors that dictate whether a lender will accept you, to show a far bigger picture...
1) Your credit score
2) Your affordability score (which, crucially, includes income)
3) Current market conditions
Once logged in, you can also use our Credit Cards Eligibility Calculator to see which cards you'll most likely be accepted for, without impacting your ability to get future credit.
It'll also show your credit report and other related info, plus gives access to our eligibility calculators for loans and mortgages.
Alternatives to try before taking out a secured loan
Getting a secured loan isn’t something to be taken lightly.
For a few, it’s an option and provides a way out of paying hefty interest on other debts, or allows you to add to the value of your home (provided you manage the loan right).
Nevertheless, before you continue, it’s worth exploring whether there are ways to do what you want to without a secured loan. Run through the checklist that suits your circumstances best…
I'm trying to cut the cost of existing debts
Before you decide a secured loan is the right option (because it probably isn't), try the following:
- Using any savings. The interest paid on savings is usually far less than interest charged on borrowing, so paying off debts with savings makes sense. Traditional logic does say always have an 'emergency cash fund'. We disagree.
After paying off debts, don't cut the credit cards you've just paid off up, lock them away strictly in case of a substantial emergency. If no emergency happens you're quids in, and can then start a cash emergency fund. If it does, use the cards and you're no worse off than when you started, and you've saved substantial interest costs in the meantime. Full details: Pay Off Your Debts With Savings.
- Doing a balance transfer. If you have credit cards, you may be able to cut the cost of that debt by transferring your debt to a new card which charges 0% interest. Read the full Balance Transfer Credit Card guide to find out how.
- The credit card shuffle. It's possible to cut the interest rate on existing debts even without getting new products. Many credit cards allow existing customers to move other debts to them at special rates. Correctly shifting balances and prioritising repaying expensive debts first creates substantial savings. Full details: Credit Card Shuffle.
- Unsecured loans. These are cheaper and less risky for those who can get them. You can use them in the same way you would a secured loan to pay off other credit. Full details: Cheap Personal Loans. Paying off another loan? See Cut Existing Loan Costs.
In debt crisis? Don't borrow – instead seek free debt help
The options above can help, but they're not right for everyone. We have three questions that are worth asking about your debts...
- Do you struggle to meet minimum monthly payments?
- Does your total debt exceed a year's salary (excluding mortgage and student loan)?
- Do you have sleepless nights or depression/anxiety over debt?
If you've said yes to any of these, don't borrow more (and especially not on a secured loan) - instead get free, one-to-one debt counselling help from Citizens Advice, StepChange or National Debtline. And if you need emotional support, try CAP.
They're there to help, not judge.
The most common thing we hear after is: "I finally got a good night's sleep." Read inspiring stories in our Debt-Free Wannabe forum and see our Mental Health & Debt and Debt Crisis Help guides.
I'm looking for additional borrowing
Before you go for a secured loan, see if any of the following work for you:
Budget & reduce outgoings. Massive savings are possible on everyday spending. Do a Money Makeover to free up existing spending, then budget effectively with the Budget Planner. Use any income freed up instead of borrowing.
- See if you can get a personal loan. As we said above, these are cheaper and less risky for those who can get them. You can use them in the same way you would a secured loan for additional borrowing, though it's worth noting that you can usually only borrow up to £25,000 on an unsecured loan. Full details: Cheap Personal Loans.
- Remortgage. Only consider this if the reason you're borrowing more is to improve your home eg an extension or a new kitchen. If it is, then borrowing the money on your existing mortgage, or remortgaging to a new cheaper deal, is a valid option, as rates are usually much cheaper than those on secured loans. Read the Remortgage Guide or talk to a mortgage broker.
If you're borrowing for any other reason, DON'T secure the borrowing on your home - whether on a mortgage or a secured loan.
Compare secured loans to find the cheapest deals
If you do want to explore a secured loan, there are two main ways to apply – with a broker, or directly with a lender. Getting a secured loan is always an advised process, which means you’ll need to speak with a broker or a lender’s mortgage adviser before you get the loan.
The adviser will go through your financial circumstances, why you want the money, and whether you’ll be able to borrow the amount you want. They should also tell you if there are more suitable solutions available for you (eg, a personal loan, debt advice) – though we hope you now feel pre-briefed on that anyway.
There are two large brokers in the secured loans space who work with most lenders, so this is the easiest route. There’s no harm in getting a quote from both to see which can offer you the cheapest loan for your needs:
- Loan.co.uk*. An online broker, which works with a good range of lenders. Go through its form and it will give you indicative quotes on how much it’ll cost you for the loan you want. The lenders you see after filling in the form will be lenders who may lend to you (eg, if you're self-employed, you'll only see lenders which accept the self-employed), however you won't see the likelihood of being able to get that loan. Expect loan.co.uk to call you, though you can tell it a time and day that works for you.
- Fluent Money but via MoneySupermarket.com*. We suggest doing this via Moneysupermarket.com as it can give you, online, indicative eligibility scores for a range of secured lenders before you have to speak to anyone (go to Fluent direct and it's all done via a phone call). And while its scores won’t guarantee that you get the loan, it should give you a good indication if you’re likely to get any loan, or will need to look for other options. If you want to proceed, you’re asked to confirm your contact details so Fluent can call you.
Been accepted for a secured loan? What you need to know...
This isn't just a section where we say "always make the monthly payment on time and in full" - though you should absolutely prioritise doing that (alongside your mortgage), because if you don't, you could lose your home.
Yet there are a couple of tips it's worth knowing...
- If you've taken the loan for debt consolidation, the lender usually will pay your cards and loans off directly. This applies for both cards and loans, and you'll need to have given the lender or broker details of these during your application. That means, in general, you won't see much or all of the cash in your account at any time.
Yet there's a danger here. You may then have credit card(s) with zero balances and £1,000s in credit limit waiting to be used. DON'T DO IT! It might be tempting, but it'll just magnify the problem you're trying to get out of. If you don't trust yourself, make sure you close the cards.
- Many people pay secured loans off when they next remortgage. Secured loans are usually taken out to consolidate debt in to a more manageable payment (though some take it for home improvements, and some a mix of both). Generally this is done by taking a long-term loan with low monthly payments which fit in your budget.
However, it's worth looking at whether you can borrow the amount you need to pay off the secured loan when you come to remortgage (provided the mortgage interest rate is lower than the rate on the secured loan - they usually are). Speak to a mortgage broker to find out what's likely. And do check if there's an early repayment charge on the secured loan.
Want to complain about your secured loan provider?
If your loan provider has taken the wrong amount in payment or its service has been atrocious, then you don't have to suffer in silence. It's always worth trying to call the lender first to see if it can help, but if not...
You can use free complaints tool Resolver. The tool helps you manage your complaint, and if the company doesn't play ball, it also helps you escalate your case to the free Financial Ombudsman Service.
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Secured loans FAQ
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What happens if I default on a secured loan?
![graphic of a house with a question mark over the door]()
You can lose your home! However, thankfully, it is less profitable for most legit secured loan lenders to repossess homes than have the debt repaid. If you mightn't be able to make a payment, or you get behind with repayments notify the lender immediately. It maybe possible to renegotiate the repayment schedule so it's more manageable for you.
Failure to repay has an immediate negative impact on your credit score, plus lenders' letters informing of arrears are often charged for, added to your account with interest, effectively a missed repayment penalty. At this point, consider talking to the free debt counselling agencies.
If all fails, the lender will repossess your house, petitioning the court to demonstrate you've been unreasonable; refused to sign letters or pay your newer repayment schedule. After that it'll empty the property of you, your family and your possessions, sell the property (probably at a low price for a quick sale) take what it's owed and its costs and give you the leftovers (if any).
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What dictates the interest rate I'll get?
If you've decided a secured loan is right for you, you need to know how much you could end up repaying. How much a secured loan could cost you depends on the interest rate you get. Your interest rate can vary depending on:
- How much you're borrowing. Never borrow more than you need. Borrow as little as possible, and pay it off as quickly as possible.
- How long you're borrowing for. Try to minimise the number of years you're borrowing for. While longer loans have smaller monthly repayments, you'll actually pay more overall as you'll be charged more interest.
Work out the maximum realistic amount you can commit to repaying each month (the Budget Planner can help). Don't underestimate or it'll take longer to repay, costing more interest; and don't overestimate or you may overstretch yourself, risking your home. Careful planning is crucial.
![representation of a credit score dial with the pointer pointed at 'good']()
- Your credit history. This is how well (or badly) you've managed credit in the past. If you've a long history of payments made on time and in full, you'll likely get a lower interest rate than someone who's missed payments in the past. See how to check your credit reports to find out how lenders might see you.
- How much equity you currently have in your home. This is the difference between your property's value and the amount you owe on your mortgage.
- The fees associated with the loan. Generally you’ll pay a lender fee of around £500 to £800, and a broker or arrangement fee, which can be anything from around £1,000 to £6,000. This is usually added to the cost of your loan/
In general, the cheapest secured loan rates are from 6% APR, for longer, larger loans. Yet it's not uncommon to see rates of 10% to 13% (and even higher if you have poor credit). Always make sure you compare costs and find the cheapest loan you can get.
- How much you're borrowing. Never borrow more than you need. Borrow as little as possible, and pay it off as quickly as possible.
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