5 questions on… secured loans


5 questions on… secured loans

If you’re looking to borrow money to fund home improvements or to consolidate your debts, you might have heard the term ‘secured loan’ mentioned. But what is the difference between a secured loan and an unsecured loan, and how could it help you if you’ve had problems with credit in the past? We’ve put together five of the most frequently asked questions to explain all:

What’s a secured loan?

A secured loan – sometime known as a homeowner loan – is a form of borrowing where the lender uses your home as security. Because the loan is secured against your property, if you can’t repay the loan, the lender could sell your home to get its money back.

If you’re a homeowner and looking to borrow money, you may be able to get a secured loan with a lower interest rate than if you borrowed via an unsecured personal loan – but this isn’t always the case.  

As the lender has some security on the loan, they may still be willing to let you borrow, even if your credit history is less than stellar. If you’ve had problems with your credit score in the past – such as late or missed payments – this may be a way that you could take out a loan without having to pay a higher APR.

You can apply for a secured loan if you’ve already got a mortgage (and can’t or don’t want to remortgage for some reason). In this case it would be known as a “2nd charge” – as your mortgage provider has the first claim on your property.  You can also take a secured loan if you already own your home outright.

For information about applying for a loan and how to boost your chances of being accepted click here >

What are the minimum and maximum amounts that I can borrow with a secured loan?

Typically, secured loans are used for borrowing larger amounts of money than unsecured personal loans – often to pay for home improvements or to consolidate other debts. One reason for this is that you can generally spread the repayments over a longer period if you wish to. Bear in mind that if you pay back over a longer period, whilst your monthly repayments may be lower, you may end up paying more interest overall.

At Ocean, you can borrow between £10,000 and £250,000 as a secured loan from one of our panel of lenders. You’ll make repayments to your lender every month but the amount that you’ll pay could change if you’re on a variable interest rate.

If you’re looking to borrow a smaller amount, like just a few hundred pounds for a new cooker, it might make more sense to consider another form of credit, such as an unsecured loan or a credit card.

How long can I have to pay back the secured loan?

As secured loans are usually larger than personal loans, it makes sense that you’d need longer to pay it back. At Ocean, you can repay a secured loan for as little as five years or as long as 30 years. If you borrow money for a longer period, you’ll have smaller monthly repayments. However, as you’re paying it off for longer, you will end up paying more in interest in the long run, so it’s usually advisable to work out a budget plan and plan to pay it off in the shortest time you can reasonably afford. Write down your living costs and any other payments and see how much you’ll be able to set aside each month to pay your loan back. Be realistic – don’t budget to repay £200 every month if it’s more likely you’ll only be able to afford £50, otherwise you could end up falling behind on your payments and ending up financial difficulties.

Can I settle my secured loan early?

If you find yourself in a better financial situation than you expected, or if you come into some money, you may decide that you want to repay your loan early. This is known as settling the loan and you will usually be able to do this. However, it’s important to check the terms and conditions for your loan, as you may have to pay early redemption charges in some cases.

What happens if I can’t make a payment to my existing secured loan?

With a secured loan, if you don’t keep up the payments your lender can take possession of your home and sell it to repay what you owe.  However, this will usually be a last resort for lenders. If you think you won’t be able to make a payment, you’ll make it late, or you can only pay part of it this month, get in touch with your lender as soon as you realise you have a problem. You won’t be turfed out of your property for being delayed with one payment and lenders will want to be kept up to date with your situation. However, just one late or missed payment will affect your credit score, meaning you may find it harder to apply for a loan or mortgage in the future, so it’s best to avoid this if possible.

If you’re looking for a secured loan, here at Ocean we search for the best deals we can offer to you from a panel of lenders. To find out more, and to apply for a quote, click here >