What are the types of secured loans?
If you’ve been thinking about taking out a secured loan, it’s worth finding out what type would be the best for you. You will be able to choose from the following secured loans, depending on your requirements as a borrower:
- Homeowner loans
- Bridging loans
- Debt consolidation loans
We’ve put together a guide to help you decide which type of secured loan would be most appropriate for your circumstances, and how to differentiate between them.
What are secured loans?
A secured loan is a high-risk form of borrowing where you are required to put up a valuable asset such as your home as collateral. This allows you to borrow a large amount of money if required, but if you fail to repay the loan in full, the lender can repossess your home.
This is in contrast to an unsecured loan, which means that a valuable asset is not required as collateral since the loan is ‘unsecured’. Lending in this regard is based on your credit score and past credit history, meaning that the loan amount and loan term are likely to be a lot smaller.
Different loan types
When looking for a secured loan, it’s likely that you’ll already have a purpose and a loan amount in mind. Therefore, it’s worth looking through each secured loan example to see which one might be the right one for you.
- Mortgage - since a standard mortgage is secured against your new property it is technically a secured loan. Unlike other secured loans though, the value is very high as it can be up to 90-95% of the value of the property it is secured against
- Homeowner loans - these are the standard in secured loans, since you can borrow money against the value of your property and repay on a monthly basis. They are also known as second-charge mortgages or home equity loans
- Bridging loans - these are secured against your current property, to fund the gap between selling your home and buying another one. They are secured loans but taken over a much shorter period
- Debt consolidation loans - these are specifically for paying off a number of debts such as other loans or credit cards. By consolidating your debts you can decrease the amount of interest you’re paying overall and also set up a repayment plan so you can work towards clearing your debt
Having an understanding of each type of secured loan will help you make a decision on which one would be best for you. If you’re still unsure, read on to find out how to narrow down your search.
Which secured loan is right for me?
Since each type of secured loan is for a very specific purpose, it can be quite straightforward to make a decision on which one is right for you.
If you’re looking to buy a property then you’ll usually need a mortgage, so that you can spread the cost over a long period. A bridging loan is used to ‘bridge the gap between selling one property and buying another, in case there is a delay.
If you already own a property, a homeowner loan would help you borrow a large amount to spend. If you already have multiple loans or credit cards, a debt consolidation loan would assist you in managing that debt and making sure it doesn’t get any bigger for the time being.
You can also find out more about secured loans here:
Compare secured loans
If you have multiple reasons for getting a loan, you may need to prioritise one thing over another, especially if it is more urgent and is adding to your existing debt. A good way to start narrowing down your search for a loan is to check your credit rating, along with your eligibility:
- Check your credit report - this will give you an indication on how likely you are to be accepted for a loan by major lenders. You will also be able to view your credit history and dispute any details that you know to be incorrect
- Check your eligibility – just by inputting a few personal details, our moneymatcher tool will be able to show you how eligible you are for certain loan products, along with recommending certain products over others. If you still aren’t sure what type of loan you need, this will give you a helping hand. Find out about the importance of eligibility here.
If you have narrowed down your search and checked over your credit report, you can also start browsing secured loans to see which one might be right for you. Use the link below to look through our up-to-date list of loans and start comparing lenders and interest rates. Good luck!
Written by Robert Bester - Content Writer
Published on 25th June 2019