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Secured loans explained

This secured loan buyers guide outlines the types of secured loan, how to compare secured loans and what to watch out for.

With a secured loan, you have to put up an asset - your home or your car - as security.

When you should use a secured loan

Secured loans are often used to consolidate debt – to pay off all your existing loans, so you've just got one payment to make each month at a set time, rather than trying to juggle several.

Secured loans often come with cheap rates, and may be your only option if:

You have a poor credit history.
You've recently changed jobs.
You're self employed.
You want to borrow more than £10,000.

These factors would normally mean you're seen as a higher lending risk. But if you can't repay a secured loan, the lender may be able to force you to sell the asset to get back its money.

This security means lenders are more willing to lend – although the better risk you seem, the cheaper the loan will be.

Why you should use LowerMyBills

Advertised interest rates may be typical ones –the rate that two thirds of successful applicants get.

Whether you're accepted and what rate you pay for your secured loan, depends on your actual credit history.

If you have a poor credit history, multiple loan applications will harm your credit rating.

So use our service to avoid making multiple applications to different lenders who won't accept you - using LowerMyBills means you'll only see loans you're likely to be accepted for.

How to compare secured loans

You can compare secured loans for amounts from £10,000 to £100,000 and from five years to twenty five.

Interest rates - The interest rate you're charged is known as the APR, and is usually variable. This means they may go up and down, and therefore so will your repayments.
How you apply - Lenders may offer lower APRs on bigger or longer loans. And some cheap loans are available only if you apply online.
Typical rates - Advertised interest rates are often typical ones – this is the rate that two thirds of successful applicants receive. The rate you will pay depends on your personal credit history.
Early repayment - There may be a penalty fee if you want to repay the loan early – check with the lender. (If the loan is under £25,000, the law puts a limit on this fee for new loans).

Secured loans - what to watch for

There are a few things you should look out for with secured loans:

The 'security' means that the lender may be able to sell your house to get back its money if you got into financial difficulties and can't repay the loan. Think abut this carefully before taking out a secured loan.
They're often taken out for a longer period than unsecured loans. Remember that a long loan with a low APR may cost you more in total than a short loan with a higher APR, even if the monthly repayments are more affordable.

Use the loan sensibly. Don't use it to pay off debts and then borrow more on your credit cards – see our advice on dealing with debt.

Secured loans explained brought to you by LowerMyBills from Experian

The LowerMyBills guide to secured loans was created to show you the types of secured loan, how to use a secured loan, how to compare secured loans and what to look out for, so that you have the information you need when looking for a secured loan.