1. Work out how much you need to borrow
Before you apply for a secured loan, consider what you want to use the money for and how much you need to borrow. Your loan can be used for almost anything, as long as it’s not for illegal activities or for gambling.
Common uses include home improvements or debt consolidation.
It’s important to remember that with secured loans, your home could be repossessed if you don’t keep up with the loan repayments. So you also need to think carefully about how much you can afford to repay each month over the term.
Your affordability will depend on a few factors, including your income, your individual circumstances and how much equity you have in your home. (You can work out the equity by deducting the amount you owe on your mortgage from your house value. Whatever you have left over is classed as your equity).
Secured loans tend to range from £10,000 upwards. But if you are offered a large amount by a lender, it doesn’t necessarily mean you should accept it. Otherwise, you could potentially end up spreading yourself too thin. Only borrow what you can afford to repay each month for the full duration of the loan. And also factor in unexpected costs, like emergency repairs for example.
2. Check your credit score
It’s a good idea to check your credit report for free with one of the three main credit reference agencies in the UK (Experian, Equifax or TransUnion) or with our partner, CredAbility. Then you can identify if there are any mistakes that need to be corrected. Any mismatched data (like your name and address) can affect your credit score. So if you spot any errors, you’ll need to get in touch with the lender or credit reference agency involved as soon as possible to rectify them.
Each lender uses its own lending criteria when assessing credit applications. But generally speaking, the higher your credit score the more likely you’ll get accepted and obtain the best interest rates. This is because lenders use your previous financial behaviour to predict your future behaviour. So if you have a good credit history, you will appear as a reliable borrower from their point of view.
Having said that, if you have a bad credit history, it may still be possible to obtain a secured loan. Some lenders and brokers, like us, specialise in lending to people with less-than-perfect credit scores. Also, if you have a lot of equity in your property this could work in your favour. Some lenders see this as balancing out some of the risk they are taking in lending to someone with bad credit.
Or, you may prefer to work on improving your credit score before you apply, in order to boost your chances of getting accepted. You can gradually increase your score over time by maintaining your payments on time, every time, for example. For more tips, read our ultimate guide to improving your credit score.
3. Compare loans
1. Use eligibility checkers
Many lenders and brokers, like us, have eligibility checkers which show you the likelihood of getting your application accepted before you apply, without affecting your credit score. You can use this tool to shop around and find the best deals. They only perform soft checks on your credit report, so you can use them as many times as you like.
2. What is the APR?
Before you apply for a loan, make sure you compare the APR (the total cost of borrowing). It is expressed as a percentage, and usually the higher it is, the more it’ll cost you. The APRC includes any compulsory interest and charges, but it doesn’t include fees or charges for not paying on time. Check the terms and conditions for the full details before you sign up.
3. Are there any early repayment charges applicable?
Check if there are any early repayment charges applicable for leaving your deal early. For example, if you come into some money in the future, will you be charged an early repayment charge for paying off your loan before your deal ends? Some lenders charge a fee to offset some of the interest they lose out on in this situation.
How long does the secured loan application process take?
As an estimate, the application process for a secured loan can take around four weeks, but the timescale varies from lender to lender. It takes longer to get a secured loan compared to a personal loan because there’s more paperwork involved, due to the loan being secured against your property. Also, the lender may need to organise a valuation of your property before they can draw up an agreement and transfer the funds.
The timescale also depends on a number of other factors, such as:
- How you apply (it's quicker online than in the post)
- How quickly you complete and return the paperwork requested by your lender
The quicker you provide the lender with all the information they need, the sooner you should get your loan. But don’t rush it. Any mistakes or incomplete information can slow the process down because we’ll have to spend time chasing up further information from you.
When will I find out if I’ve been accepted?
If you use an eligibility checker, you could find out the likelihood of being accepted in less than 5 minutes. The quotes you get are often subject to affordability assessments, your individual circumstances and the lender’s criteria. The lender will also usually request evidence to support the information you have entered, to make sure it is true and accurate.
What documents do I need for a secured loan?
We’ll let you know what documents you will need to provide. It varies from person to person and depends on your individual circumstances. Some example documents include:
- Your application form
- Bank statements
- Proof of income and expenditure