What is a secured personal loan?

You can either get a secured loan or a personal loan. A personal loan is a form of unsecured borrowing, which means it isn’t attached to an asset. A secured loan, on the other hand, involves using an asset as collateral – usually your property. This is why secured loans are sometimes known as ‘homeowner loans’.

With both secured and unsecured loans you borrow a lump sum of cash and pay it back (including interest) over a set loan term. Both types of loans can be taken out in single or joint names.

But bear in mind, if you have a joint mortgage and you want to secure a loan against your home, then the loan would also have to be in joint names. This is because you can’t use a property as collateral without the permission of the person who jointly owns it.

Under these circumstances, the other person would also become jointly liable for repaying the full loan. That doesn’t mean that you repay half each. Instead, if one of you were to stop making repayments the lender could chase you both for the missing money.

Secured loan meaning 

The definition of a secured loan is money you borrow that’s secured against an asset of value, such as your property.

Secured loans tend to be for larger sums than personal loans, due to the security attached to them, which acts as a safety net for the lender. Using your home as security may enable you to borrow more and with lower interest rates (compared to personal loans). However, they come with a higher risk attached.

If you fail to make your repayments, the lender could force the sale of your home to claw back funds (as a last resort). This isn’t possible with a personal loan.

Note, if you own your home outright it isn’t possible to get a secured loan. If this applies to you, you could potentially remortgage to free up cash, or consider a form of unsecured borrowing instead.

What can I secure a loan against? 

Normally, you need to secure a loan against your home. Though some lenders may accept other assets of value, such as:

• your car or other vehicle
• jewellery
• savings

Personal loan meaning 

A personal loan is different from a secured loan because you don’t secure it against anything.

This means there’s no risk of you losing your home if you fail to make payments. However, missing just one monthly instalment can damage your credit score and ability to get finance in the future.

The application process is similar, in that you identify how much you want to borrow, search for a deal, then use an eligibility checker before you apply. However, you can usually get a personal loan quicker than a homeowner loan, as there’s less paperwork involved.

Bear in mind, you also can’t usually borrow as much as you would with a secured loan – (it’s normally limited to sums under £15,000), but it depends on the lender and your individual circumstances.

Do you need collateral for a personal loan? 

You won’t need collateral for a personal loan because it isn’t secured against an asset. The lender relies solely on other factors, like your credit history, affordability, and debt-to-income ratio when deciding whether to lend to you.

So, it’s more important to have a good credit score when applying for a personal loan. The higher your score is, the more favourably lenders may look at your loan application.

Secured loan examples  

• mortgage – this is a form of borrowing that’s tied to your property
• homeowner loans – also known as a ‘second charge mortgage’, as your property is used as collateral
• logbook loans – these are secured against your car, and can be expensive
• debt consolidation loans– are used to combine multiple debts into one
• home improvement loans – are typically used for home renovations 

Unsecured loan examples

• personal loans
• debt consolidation loans – can be secured or unsecured
• home improvement loans – can be secured or unsecured
• payday loans – short-term loans, usually with high interest rates

Secured vs unsecured 

When deciding which type of loan to take out, you need to think about the pros and cons of each. 

With secured loans, you can often:

• borrow larger sums of money
• access lower interest rates
• spread the repayments over a longer period
• apply even if you don’t have a high a credit score because you’re securing the money against an asset

However, there are disadvantages to a secured loan, including you may:

• lose your home if you stop making the repayments
• have variable interest rates, causing your repayments to go up or down
• be in debt for longer due to the lengthy loan period
• be charged early repayment fees if you want to pay the loan back before the term finishes

Some advantages of an unsecured loan are that you:

• won’t have to use an asset as collateral, so you don’t risk losing your home
• can pay it off early without incurring early repayment charges, if the loan is under £8,000
• can access the money quicker – sometimes even on the same day
• aren’t committing to long-term debt

However, you’ll also need to consider that with an unsecured loan you:

• can’t usually borrow as much as with a secured loan
• may have to pay higher interest rates
• can only access the best deals if you have a good credit score
• won’t be able to spread the payments out over a long period 

Essentially, you need to weigh up the advantages and disadvantages and see which products you can access in order to decide which loan is best for you. We suggest using an eligibility checker to see which loans you’re likely to be accepted for before you apply – without impacting your credit score.