Best Secured Loans

We explore the best secured loans in the UK.

Updated: March 27, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Rebecca Goodman

Edited By

Rebecca Goodman

 

Loans can be taken out for many reasons, whether that's a personal loan or a homeowner loan. More commonly than not, most people choose between a secured and unsecured loan, but in this article we'll be mostly discussing the former.

Secured loans are a form of loan that typically require some kind of collateral, such as your house, car, or any other valuable assets, to be used as a security measure against default.

This type of loan is popular among people with all types of credit score thanks to its large credit limits. In addition, secured loans cost less in terms of interest in comparison to unsecured loans.

However, that's not to say that secured personal loans are without their own flaws, so it's essential you weigh up all the factors before making a final decision.

So, join us as we compare secured loans to find the best options currently available in the market. We'll be breaking down the pros and cons of secured loans, as well as the different prices you'll have to pay in APR.

No matter if you're looking for a tool to consolidate your debt, finance a renovation for your home, or even start a new business, it's vital you're doing so with a firm understanding of how secured loans work.

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1. Paragon Bank★★★★★Click Here
2. Norton Finance★★★★★Click Here
3. United Trust Bank★★★★★Click Here

Pros of secured loans

In this part of the article, we'll be going over why you might want to consider taking out a secured loan, and why you might need to.

Lower interest rates

Secured loans represent a form of trade off when it comes to interest rates. While you'd normally expect high interest rates from any type of loan, the fact that you're providing the lender with some sort of collateral eliminates the need for them to charge you high interest rates.

In general, the banks often charge a high interest rate to give themselves some form of security assurance.

Because they'd previously be relying solely on your credit report, it's more of a risk to them that you won't pay the loan back on time, given that they don't have something valuable of yours in possession.

As far as borrowers are concerned, this means you'll have lower monthly repayments and less general interest paid over the course of the loan, ultimately saving you cash in the long run.

Larger loans

In addition to paying less in monthly payments, you'll also be able to take out a much higher amount of money in comparison to things like unsecured homeowner loans. This is due to the increased trust on the lender's behalf because they can take possession of an asset if you default on the loan, as mentioned before.

Now that you're able to increase your credit limit size, you can use the loan for a lot bigger purchases or investments, like paying off your college tuition fees, or making the first crucial steps into financing a business.

Longer repayment terms

Moving on from the total amount you can actually withdraw with these loans, you also have the flexibility of long repayment terms, meaning you have much more time to pay off your loan before you start incurring penalties.

Lastly, this longer repayment period makes it a lot simpler to manage your personal finances since you contribute much less money every month in comparison to an unsecured loan.

Improved credit score

Many people opt to take out a secured loan because they don't have a high enough credit score to be approved for an unsecured loan in the first place.

These types of loans are useful for improving your credit score, if you make repayments on time, as you can demonstrate to future banks and lenders that you can be trusted with loans with large credit limits.

When you improve your credit score, you have a much more streamlined process when it comes to receiving credit cards, loans, or any other kind of financial product, so it's absolutely worth prioritising this improvement.

Cons of secured loans

While it's true that secured loans come with their fair share of benefits, as with most loans, there's still a few downsides you should be aware of before making any major financial decision.

In this section, we'll go over why these types of loans may not be a universal fix regardless of your individual financial circumstances.

Risk of losing collateral

There's a possibility that you lose whatever valuable possession you handed to the lender as your form of collateral.

This could have dire consequences on your financial wellbeing if you weren't able to make your loan payments, and could even result in the loss of your house.

It's worth saying that this is a worst-case scenario, and the banks will often work with you to discuss payment plans if you're having trouble making your monthly repayments. However, it's still a risk you should keep at the forefront of your mind when deciding whether to take out a secured loan.

Higher fees

In addition, depending on who you approach for a loan, you might find that their loans have higher fees than unsecured loans. This is not to be confused with higher interest rates, and focuses more on extra fees that come along with the loan such as legal or property valuation fees.

Again, it's entirely dependent on the specific terms you've negotiated, but some of the high fees on certain secured loans, such as homeowner loans, can actually result in them costing you more in the long run.

Potentially damaging your credit score

Unfortunately, taking out secured loans has the potential to damage your credit score in the short term. Whenever you apply for a secured loan, the lender has to perform a check on your credit score in order to properly assess your creditworthiness (and total loan amount you can be trusted with lending).

If you're fortunate enough to be approved for the loan, it'll now show up on your credit report as a new account. This can actually make your credit score drop temporarily, as the length all your credit accounts have been opened for has a major impact on your overall rating.

In addition, your credit score could drop even further if you haven't been able to keep up with payments, which can understandably be a massive strain on your finances if your credit score is already fairly low.

Early repayment charges

While it sounds slightly counterintuitive, some lenders will actually send early repayment charges if you make payments before the specific time they have allotted you.

There's a few reasons banks and other lenders do this, but primarily the lender can lose out on the interest they'd be earning from you if you had continued to make payments throughout the entire term of the loan.

Secured loans are obviously not something you want to keep open any longer than you need to, but their early repayment fees can quickly stack up and make it far less beneficial to do so.

How to get a secured loan

1. How much money you actually need

While it's understandable that you may be in a rush to find the closest lender to you, there's still a few things you should be clear of in preparation. Firstly, are you aware of the total amount of money you need from a loan?

Make sure you're keeping an eye on your budget so you can get an estimation on how much you're comfortably able to repay each month.

2. Shop around

There's a lot of separate metrics to measure a good lender, but typically you want to ensure you're comparing them on their interest rates, additional fees attached to the loan, and what their repayment terms look like.

In addition, there's many loan comparison tools available on the interest that allow you to consolidate all the different terms and conditions offered by lenders into one, straightforward page.

3. Choose a lender

After you've compared them on all the relevant features, it's time to make an executive decision and choose your lender for receiving loans. This step is not to be brushed over quickly, as selecting the wrong lender can trap you in another cycle of debt if you miscalculated how expensive/how affordable their interest rates are.

If you are absolutely certain though, we can move to the next step by contacting the lender or bank directly to inquire about their application process and what kind of documentation you're going to need to provide.

4. Gather documentation

You'll often find that regardless which lender you ultimately decide on, they'll all require a range of documentation from you in order to verify your income, employment, and other financial information.

It can vary depending on who you've taken out a loan with, but more often than not you'll need to provide things like tax returns, bank statements, utility bills, and proof of insurance for any of the collateral you're putting up.

5. Apply

Every lender has their own systems, but you're typically able to start the sign-up process by contacting them online, over the phone, or in person at a branch.

Afterwards, the lender will take your creditworthiness into consideration, as well as assessing the collateral you've provided. Once they've finished reviewing your application, they'll let you know if you've been approved for the loan or not.

6. Sign the agreement

Once the lender has agreed to approve you for the loan, they'll send a contract back to you which you'll have to carefully consider and sign before receiving any money.

This is your last chance to turn back if you feel like you haven't assessed your personal debt well enough and are unsure about specific terms and conditions. Still, it's a fairly standard document and is only outlining some basic terms of the loan such as the interest rate, payment terms, and any other additional fees.

7. Receive your funds

Congratulations! You've now successfully received a secured loan. All that's left at this point is for the bank or lender to disburse you the money in the form of either a cheque or direct deposit straight into your bank account.

Just remember, try to only ever use the loan for the reason you've borrowed it, i.e. consolidating debt, mortgages, and improving credit score. There's serious repercussions to misspending on credit cards that can quickly ruin your credit score, so try to never be carrying a high balance.

And lastly, ensure you're always paying the loan back within the exact timeframe they provide for you to avoid a secured loan early repayment fee or any broker fees.

Top 3 secured loans

Let's take a look at a few examples of secured loans you can apply for in the UK.

It's important to note that banks and various different lenders will commonly change their rates and fees on a case by case basis, so you will always need to receive a direct quote from the source.

1. Paragon Bank

This kind of secured loan is perfect for anyone looking to receive a homeowner loan. This kind of loan can be used to finance any refurbishments or renovations you need to make towards your house, and they typically offer borrowers between £20,000 to £500,000.

However, this is more of a general figure, and the final amount you'll receive will be dependent on a few metrics, like how much your home is worth and what your existing mortgage is — all with a maximum LTV of around 75%.

Similarly, while the repayment terms from this mortgage lender ranges from 5 to 30 years, the specific terms of your contract will depend on your personal needs and financial circumstances.

Lastly, when it comes to interest rates, they offer a selection of either variable of fixed options, with the latter being over the course of 2 to 5 years. There's a few reasons you might decide on fixing your interest rate, but most people do it to help them budget slightly better.

In addition, it can also help to have that peace of mind knowing that your interest rate won't increase during the fixed period.

2. Norton Finance

Next up we have Norton Finance, a secured loan lender that provides loans from £3000 up to as high as £250,000! Like Paragon Bank, the final amount that you'll actually receive will be based on the price of your house or other collateral, but they do offer repayment terms ranging from 1 to 25 years.

Norton Finance has a bunch of different features that make them stand out from other kinds of lenders, even offering borrowers with over 600 different financial products to pick from.

It can help to have a lender that recognises the importance of selecting the right loan, so having such a wide panel of options is a great help in finding it.

Furthermore, Norton Finance has incredibly flexible criteria when it comes to lending, and you even still stand a chance of receiving a loan if you've got a bad credit rating. Having an opportunity to improve your credit score is something everyone with a significant amount of debt should be interested in.

And lastly, it's worth noting that this lender does charge a “broker fee” and a “product fee” for their services that get added to the total loan amount. For their standard secured loans, this is typically around 12.5% of the total loan amount, so it's important to keep this in mind when weighing up if they're a financially viable option for you.

The product fee will vary depending on the type of loan, but this can also be anywhere up to the 10% of the final amount you pay.

3. United Trust Bank

Our final option is United Trust Bank, a UK-based lender that focuses more on second charge mortgages for homeowners.

It's very important to note that these types of loans are going to be secured against your house, meaning you could possibly become homeless if you fail to make repayments.

Keep this in mind when you're working out if you can afford to pay the loan before applying.

The loans that they provide ultimately reflect the value of a certain percentage of your property, rather than whatever your outstanding mortgage is. In addition, United Trust Bank offers both fixed and variable rate secured loans, so you'll always have the freedom to set a fixed term if it helps you budget better.

Making repayments

It's no secret that maintaining your monthly loan repayments is challenging when you're in debt, but it's a skill that every borrower needs to master in order to avoid late fees and pull your credit rating back up.

To round the article off, we'll be exploring 5 basic tips to help you keep on track of your finances while you're in a fixed rate secured loan.

1. Create a budget

Realistically, there's no way you can consistently make loan repayments every month without some kind of plan or loan budget. These can be a huge help when it comes to tracking your income, various expenses, and for when you're identifying areas where you can cut costs.

In your specific budget, you can allocate a specific amount of money towards loan repayments, ensuring that you don't miss any payments in the future.

2. Make payments on time

Whenever you make late payments, your credit score plummets significantly, resulting in additional fees and charges. Because of this, it's essential you're making any payments on time.

Consider setting up reminders or automatic payments to eliminate any risk of losing your collateral.

3. Get help

If you're struggling to manage all your monthly loan repayments, it might be a good idea to consult a free debt charity such as StepChange. They can give you independent advice about how to get on top of your financial situation.

4. Avoid late fees

Late fees can quickly add up and make it challenging to keep up with your loan repayments. To avoid late fees, make sure you know when your payments are due and ultimately plan ahead so you're never in any jeopardy.

5. Pay more than the minimum

This final step is very much dependent on the specific lender you've gone to, but generally speaking paying slightly more than the minimum amount every month lets you pay off your loan much faster.

This helps you save on interest too, and it doesn't even have to be a substantial amount more either, even small amounts can make a significant difference in the long run.

If you can do so without incurring penalties, try to make extra payments towards your loan whenever possible.

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About Havin Bank Havin Bank, formerly known as Havana International Bank, or HIB, was founded in the United Kingdom in 1972. It received its banking authorisation the following...
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About Paragon Bank Paragon Banking Group is a UK-based specialist finance provider, headquartered in Solihull and founded in 1985. Originally named National Home Loans Corporation,...
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About United Trust Bank United Trust Bank was founded in 1955 as Bank Insinger de Beaufort PLC. It is based in London, United Kingdom. United Trust’s business is focused on providing...
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