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Secured Personal Loans

Secured Personal Loans

What is a Secured Personal Loan?

A secured personal loan is a way of borrowing a lump sum of money from a bank or building society. You have to put up some property, usually your home, as security for the loan. They may also be referred to as a homeowner loan or second mortgage.

The property is secured by the lender by way of a ‘second charge', which ranks behind your main mortgage (which is held on a ‘first charge' basis). This is a legal arrangement and is registered with the land registry.

You can use the money for whatever you want (provided its not illegal or for commercial gain), but secured loans are commonly used to fund home improvements or other major purchases, or to consolidate other debts.

You need to meet a regular monthly repayment throughout the term of the loan, which can generally be between 5 and 25 years.

Who are they suitable for?

• Secured personal loans are for people who want to borrow larger amounts and who have equity in their homes that they can use as security.

What should you look out for?

There are a number of catches and things you need to understand before you commit yourself to a secured loan. These include:

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• The ‘second charge' on your property means if you default on your secured loan, the lender can ultimately take you to court to re-possess your house. The first charge lender gets paid back first, then the second charge lender gets what's left up to the value of the outstanding debt. 
• Secured personal loan interest is usually variable so it is difficult to budget. If you've also got a variable rate mortgage, you might get hit twice if rates go up, so make sure you can afford it. 
• Consolidating debt is usually a good idea to get you out of a hole in the short term. But if you lower your monthly repayments in return for a longer loan period, you'll end up paying more overall. 
• The selling and administration of first charge loans is regulated by the Financial Services Authority. Second charge loans don't give you this protection, although all second charge loans, regardless of size, are covered by the Consumer Credit Act 1974.

Moneyfacts.co.uk has put together guides on things to watch out for and the key factors to consider when purchasing a personal loan.

If a secured personal loan isn't for you, we've got guides and best buy tables for unsecured personal loans too.

What to do next

Take a look at our personal loan guides so you know what you're getting yourself into. Then compare the latest personal loans best buys to check the latest rates and deals on offer.