How Secured Loans Work
When you take out a secured loan, the lender places a legal charge on your property. This gives them the right to repossess and sell your home if you default on the loan. The charge sits behind your main mortgage, which is why secured loans are sometimes called second charge mortgages.
You receive a lump sum and repay it in monthly instalments over an agreed term, typically five to 25 years. Interest can be fixed or variable, and the total cost depends on the amount borrowed, the rate, and the repayment period.
Because the lender has your property as collateral, they face less risk than with an unsecured loan. This generally means you can access larger amounts and more competitive interest rates, especially if you have significant equity in your home.
What Can a Secured Loan Be Used For?
There are no strict restrictions on how you use a secured loan, though lenders will usually ask about the purpose during the application. Common uses include home improvements, debt consolidation, funding a large purchase, or raising capital for a business.
Some borrowers choose a secured loan instead of remortgaging because their current mortgage deal has favourable terms they do not want to lose. Others may find it easier to qualify for a secured loan than a full remortgage, particularly if their circumstances have changed since they took out their mortgage.
Who Offers Secured Loans?
Secured loans are available from specialist lenders, high-street banks, and building societies. The market is smaller than the mainstream mortgage market, so working with a broker who covers the whole of the market can help you find the best deal.
All secured loan providers in the UK must be authorised and regulated by the Financial Conduct Authority (FCA). This means you benefit from the same consumer protections as with a mortgage, including the right to a Key Facts Illustration (KFI) before committing.
How Much Does a Secured Loan Cost?
Interest rates on secured loans are typically higher than first-charge mortgage rates but lower than unsecured personal loan rates. As of recent market conditions, rates can range from around 3% to 15% depending on your credit profile, equity, and the amount borrowed.
In addition to interest, you may face arrangement fees, broker fees, and valuation costs. Some lenders add these to the loan balance, so always check the total amount repayable rather than focusing solely on the headline rate. Comparing the APRC (annual percentage rate of charge) across different offers gives you a fairer picture of the true cost.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.