Types Of Secured Loans In The UK Explained

Secured loans allow you to borrow money whilst having your loan secured against an asset of your choice, usually a property or a vehicle. 

There are many different types of secured loans available in the UK depending on what you are looking to do with the money. 

You can use a secured loan to do home improvements, finance your car or consolidate your debts. 

Find out in this guide what a secured loan is, what different types of secured loans are available in the UK and why you should consider taking out a secured loan with Proper Finance. 

What is a secured loan?

A secured loan is a loan where your lender will take legal charge over an asset of yours (a property, house or flat etc..) in order to protect the money that they lend you. 

If you were to default on your loan payments, then this asset could be repossessed by your lender. 

They are commonly added on top of your first charge mortgage and can sometimes be referred to as second charge mortgages. 

The rates on secured loans tend to be slightly higher than first charges because of the increased risk to the lender. 

If you were to default on a second charge loan then the first charge lender would get the equity of the house owed and the second charge would be left with the rest.

What are the different types of Secured Loans in the UK? 

As mentioned, there are many different types of secured loans that are available as a borrower in the UK. 

The type of secured loan you might be after will depend on what you are looking to use the money for and how much money you are looking to borrow. 

Some example of secured loans in the UK include:

Mortgages 

Mortgages are the most classic type of secured loan available in the UK. Your mortgage is secured against your property, whether you are a first time buyer or looking to remortgage. 

Proper Finance has many different mortgage options including low deposit mortgages and 75% LTV Mortgages which you can explore today if you are looking to get a mortgage on your property.

Homeowner Loans 

Homeowner loans are loans that are secured against your property but they are different to mortgages (which allows you to purchase your property). 

Many people will use their homeowner loan to do home improvements or refurbishments as well as for other ways to increase the price of their house in the long-run. 

These loans are often for larger sums for over £10,000 and they can last from anywhere between 3 to 30 years.

Equity Release Loans

Equity release loans allow you to unlock the value of your home and then gives you the option of turning it into a cash lump sum.

There are a number of policies available through Proper Finance which let you release the equity in your home if you are over the age of 55. Furthermore, equity release isn’t only applicable to those who have fully paid off their mortgage.

Typically with equity release, you will have one of the two following options: you can take the cash that you release in one lump sum, or you can decide to take it out in smaller instalments. However, bear in mind that you would pay interest on it. Or, you may have the option, depending on the lender, to do a combination of the two.

There are two main types of equity release loans that you can get in the UK, these are:

• Lifetime mortgages: usually the most popular type of equity release, this allows you to borrow some of your property’s value at a capped or fixed interest rate. With this type of equity release you can take out money from your home bit by bit up to an agreed amount – with interest charged on this amount, but not the whole amount available.
• Home reversion plan: with this kind of equity release, the equity release provider will pay you a tax-free lump sum for a proportion of your home, at below market value. You will then live in the property (with no rent to pay) until you die. Once the property has been sold, the sales are split based on what you own and then what the lender owns.

 

Car Loans 

Car loans are secured against your vehicle and you would use this in order to buy your car. 

It is a finance agreement that allows you to repay the value of your car through a secured loan, secured against that vehicle. 

Once you make the final payment then you will own that vehicle, these usually last between one to five years.

Bridging Loans 

Bridging loans are loans that are usually secured against your property and normally extremely large loans that allow you to bridge the gap before other finance is available.

The most common example of bridging loans is taking out a bridging loan to buy a new house before your old house has sold. 

Bridging loans tend to have high interest rates but they are made to only be taken out over extremely short periods, which could be as short as 12 months. 

Debt Consolidation Loans

Lastly, you can get a debt consolidation loan. These are secured loans against your property or your vehicle and are often used to allow you to consolidate your debts. 

It allows you to pay off your existing debts with the aim of reducing your monthly repayments in the long-run.

Should I Get A Secured Loan?

There are many reasons why getting a secured loan could be right for you. These include that with secured loans you can: 

 

• Borrow larger sums than with unsecured loans

• Still borrow if you have a poor credit history

• Longer loan terms are available

• Borrow if you are self-employed