10 common secured loans questions answered

We’ve put together some answers to ten of your pressing questions. We explain all about secured loans, how they work and if you’re eligible.

5 min read
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1. What is a secured loan? 

secured loan is a form of borrowing where the lender uses an asset of yours as collateral. For example, with a homeowner loan, the loan is secured against your property. This means the lender could sell your home to get their money back if you can’t repay them. (But this action is usually only taken as a last resort). 

As the lender has some security, they may be more willing to let you borrow larger sums, even if your credit history is less-than-perfect. Also, you may find it easier to access lower interest rates compared to an unsecured loan – but this isn’t always the case.   

2. Can I get a secured loan on top of my mortgage? 

Yes, you can apply for a secured loan if you’ve got an outstanding mortgage.  

In this case, your loan would be added as a ‘second charge’, as your mortgage provider would have the first claim on your property. This means if you were to sell your house, the proceeds would pay your mortgage balance first. Then any remaining funds would go towards your secured loan. If there’s anything left over, it’d go to you. 

3. What can I use a secured loan for? 

You can use a secured loan for almost anything (but not gambling or anything illegal). Common uses include:  

  • Home improvements
  • Home extensions 
  • Debt consolidation (to merge multiple debts into one monthly payment) 

4. What are the minimum and maximum amounts I can borrow? 

You can typically borrow more money with a secured loan than with a personal loan. For example, at Ocean, you can borrow between £10,000 and £100,000 as a secured loan from one of our panel of lenders. You would then pay it back on a monthly basis, over an agreed time frame. 

Remember not to borrow more than you can comfortably afford to repay. Otherwise, you could end up in financial difficulty.  

5. What eligibility criteria do secured lenders look for? 

Each lender will follow their own eligibility criteria, but you will need to be a homeowner if you want to use your property as security. 

Most lenders will consider:  

  • Your affordability (based on your income and outgoings) 
  • How much your asset is currently worth  
  • How much equity you have in your asset (i.e. how much you own outright) 
  • Your credit history (though this bears less weight compared to an unsecured loan) 

6. How long do I have to repay a secured loan? 

You may be able to spread your secured loan repayments over a longer timeframe. For example, at Ocean, we offer secured loans from 3 to 25 years in length. The exact timeframe will vary depending on the lender you choose and your individual circumstances. 

It can be helpful to spread out the loan in order to reduce your monthly repayments. However, the longer your loan term is, the more interest you’ll pay in the long run.  

Try to budget to pay it off in the shortest timeframe you can reasonably afford. That way, you’ll pay less interest overall. But remember to be realistic, to avoid overstretching yourself. 

7. Can I settle my secured loan early? 

If you end up in a better financial situation than you expected, you may want to settle your loan early. You should be able to do this - if your lender agrees. 

Be aware, you may need to pay early repayment charges in some cases. Make sure you check the terms and conditions of your loan before you sign up.  

8. Does a secured loan application show on my credit file? 

A formal credit application will show on your credit file for up to 12 months. When you apply, the lender will run what is known as a ‘hard check’ to review your credit history and find out if you are a responsible borrower. 

If you make multiple applications within a short timeframe, it can give lenders the impression that you’re in financial difficulty, which could put them off. At the end of the day, they want to feel confident that they'll get their money back. 

Tip: By using an eligibility calculator before you apply, you can find out if you’re likely to get accepted - without affecting your credit score. 

9. What happens if I can’t make a payment? 

With a secured loan, if you don’t keep up the payments your lender can take possession of your home and sell it. However, this will usually be a last resort.  

If you don’t think you can make a payment on time (or you can only make a part-payment), get in touch with your lender as soon as possible. You won’t be turfed out of your property for missing just one payment. Lenders will want to be kept up to date with your situation so they can help you get back on track. They may be able to offer you different solutions, depending on your circumstances. 

Bear in mind though, just one late or missed payment will affect your credit score, meaning you may find it harder to get finance in the future. So, it’s best to avoid this if possible. 

If you are in financial difficulty, it may be worth speaking to an organisation like Citizen’s Advice or StepChange. They can offer free, non-judgmental advice. 

10. What are consolidation loans? 

Consolidation loans help you to streamline multiple debts (like credit cards and loans) by merging them together. This means you only need to make one payment per month, instead of juggling multiple debts.  

You can either opt for a secured or unsecured consolidation loan. Bear in mind, securing previously unsecured debts involves extra risk too, as the consequences of not paying are higher. For example, the lender could repossess your property to claw back funds, in the worst-case scenario. 

You may be able to save money by consolidating your debts if you can find a lower interest rate than you’re currently being charged. Plus, you could reduce your monthly repayments by spreading them over a longer period. Just remember that the longer your loan term is, the more interest you’ll pay in total.   

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We have found loans with rates from 2.10% to 25.34% APRC, which has allowed us to help customers with a range of credit profiles. Representative Example: If you borrow £20,000 over 10 years, initially on a fixed rate for 5 years at 5.35% and for the remaining 5 years on the lender's standard variable rate of 6.15%, you would make 60 monthly payments of £247.79 and 60 monthly payments of £252.62. The total amount of credit is £22,995; the total repayable would be £30,119.60 (this includes a Lender fee of £595, a Broker fee of £2,400 and a Lender exit fee of £95). The overall cost for comparison is 9.1% APRC representative. This means 51% or more of customers receive this rate or better.