What lending criteria are applied to secured loans?

Criteria vary from one lender to the next, but one thing all secured loans have in common is that they use an asset, such as your home, as collateral. You must own the asset to be able to secure a loan against it. If you can’t keep up with the repayments, the lender could repossess the asset to recover their losses.

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Do I need to be a homeowner?

You need to be a homeowner if you want to use your house as security for a loan. These types of secured loans are also known as homeowner loans. However, you don’t need to be a homeowner to get all types of secured loans. 

Can any other assets be used?

Some lenders may accept other assets, such as your car.

What’s accepted will vary from one lender to another. In all cases, your asset(s) would need to hold at least the same value as the total cost of the secured loan to be accepted as collateral.

Do I need a good credit score?

No, you don’t need a good credit score to be approved for a secured loan. Using an asset as collateral reduces the risk to the lender. That’s because they could sell the asset to recoup owed funds as a last resort. So, it’s important to borrow only what you can afford to repay over the full term of the loan. 

With this added layer of security, lenders tend to feel more comfortable approving secured loans. Plus, some lenders and brokers specialise in helping those with less-than-perfect credit scores. 

Do I need to earn a lot?

You don’t need to earn a lot to get approved, but you do need to earn enough to cover the monthly loan repayments, on top of your other bills and expenses. 

Each lender will use their own criteria. One may accept your application, while another may turn it down. Generally, lenders will look at your affordability as well as criteria like:

  • the value of your asset 
  • how much equity you have in your property (i.e. the portion your own outright)
  • your credit history (though this bears less weight than with a personal loan)

The higher your property's value and the smaller your mortgage, the more you may be able to borrow against your home.

Is my home at risk?

As long as you maintain your secured loan payments (and mortgage payments) on time, every time then your home won’t be at risk.

If you’re falling behind, you need to tell your lender as soon as possible to avoid the risk. They may be able to arrange an affordable repayment plan to help you get back on your feet. Repossession is normally only a last resort.

Are secured loans easier to get?

Secured loans can often be easier to get than unsecured loans, even if you have a bad credit score and a low income. This is because secured loans come with an added layer of security to the lender. They are less risky than personal loans from the lender’s point of view, as they come with collateral (your asset). 

As a result, you may be able to access:

  • higher sums of money
  • lower interest rates
  • repayments spread over a longer timescale 

Alternatives to a secured loan

The most suitable type of credit for you depends on your individual circumstances and your affordability. Here are a couple of alternatives to a secured loan that you could consider:

1. Personal unsecured loan

Although it may be easier to get a secured loan than a personal loan, it’s worth exploring your options before making a decision.  

Secured loans can take around four weeks to enter your bank account, but personal loans are quicker because there’s less paperwork involved. You may be offered smaller sums of money with higher interest rates over a shorter repayment term. Unlike a secured loan, your home wouldn’t be used as collateral. 

This may suit you if you only need a small sum of money and fast. Plus, paying the loan back over a shorter period usually means you pay less interest overall (despite higher interest rates).  

2. Remortgage

You could raise funds by remortgaging and borrowing more money against your property that way. When you remortgage, you replace your current mortgage with a new one. Instead of paying towards your mortgage and loan separately, you’d just make a single payment each month. You can either stay with your existing provider, or switch to a new lender.  

You should always weigh up the pros and cons of switching before going ahead. For example, you might be able to find lower interest rates by remortgaging. However, it could take you longer to pay off your mortgage if you borrow more. Plus, you could end up paying more interest in the long run. 

Remember, whether you take out a secured loan or remortgage, the borrowing is secured against your property. This means you could risk your home being repossessed if you don’t maintain your repayments. 

How to get a secured loan?

Make sure you shop around for a suitable deal and take these factors into account:

1. The APRC

APRC (annual percentage rate of charge) represents the total cost of a secured loan or mortgage to the customer, shown as an annual percentage of the total loan amount. It includes all interest rates and charges applied over the full loan term, making it useful for comparison. 

Where you see a ‘representative APRC’ advertised, this means 51% or more of customers receive this rate or better. 

2. Early repayment charges

Some lenders apply early repayment charges when you end a contract earlier than agreed. They do this to recoup some of the interest they’ll lose out on.  

It’s worth checking if this is part of the terms and conditions of your contract before you sign up.

3. The loan term

Consider how long you want to repay the loan for. Do you envisage your financial circumstances changing in the future? Spreading the repayments over a longer timescale should make them more affordable. At the same time, paying your loan back over a longer period means you’ll pay more interest overall. 

4. Monthly repayments

Don’t borrow more than you can afford to repay on a monthly basis, as this could quickly lead to financial difficulty. Remember, not being able to maintain your repayments could result in the repossession of your home (or other collateral).

5. Eligibility

Most lenders offer eligibility checkers that show how likely you are to be accepted for credit before you apply. You can usually find out in under 5 minutes. And eligibility checkers won’t affect your credit score, so you can use them as often as you like. 

Bear in mind, quotes shown during eligibility checks are subject to wider lender assessments of your finances (including affordability checks).  

Read our helpful guides to learn more about loans.

What information will I have to provide? 

The information required to apply for a secured loan will differ from lender to lender; however, there are a few common requirements which are listed below. 

  • The value of your current property and how much equity you have 
  • How much you want to borrow and for how long 
  • Proof of ID verifying your name, date of birth, and address 
  • Your monthly income and employment status 

Note, evidence may be requested to establish the affordability of the loan for you, e.g. statements, bills, income and outgoings. 

What questions should I ask? 

There will no doubt be numerous questions which arise throughout the consideration and application stage. Some of these will be for yourself, whereas others may be for your provider. Questions to think about include: 

  • Can I afford to pay the monthly repayments over the full loan term? 
  • What is the interest rate and are any fees payable? 
  • Is the interest rate fixed or variable? 
  • When will I receive the loan? 
  • What happens if I want to repay the loan early? Does an early repayment fee apply? 

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Secured loans are secured against your property.

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