A secured loan is a loan backed by an asset, typically property, used as collateral. This type of loan generally offers lower interest rates and higher borrowing limits compared to unsecured loans. However, if the borrower fails to repay, the lender can seize the asset to recover the debt, making it a higher risk for the borrower.
Secured on your property
A secured loan requires the borrower to pledge an asset, such as property or a vehicle, as collateral. This provides security for the lender, as they can seize the asset if the borrower defaults on the loan. In this case, the asset is your home or BTL property.
Lower interest rates
Secured loans generally offer lower interest rates compared to unsecured loans like credit cards or personal loans. The collateral provides additional security for the lender, resulting in reduced interest rates. This can allow borrowers to access larger loan amounts or longer repayment periods.
Second charge loan
A second charge loan or secured loan, is a type of loan taken against a property that already has a primary mortgage. The borrower uses the equity in their property as collateral. The lender holds a secondary charge on the property, meaning they have secondary priority for repayment after the first mortgage lender.
Benefits of second charge loans
Homeowners can utilise second charge loans to access additional funds without needing to remortgage or risk losing their existing mortgage deal. These loans are useful for purposes like home improvements or debt consolidation.
Financial commitment and risks
Taking out a secured loan is a significant commitment with potential risks. Borrowers must ensure they can comfortably afford the loan repayments to avoid losing the collateral asset and damaging their credit rating. Extended repayment periods of secured loans may also result in higher overall costs.