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What can a secured loan be used for?
If you’re considering borrowing to achieve your financial goals, a secured loan could provide the flexibility and the funding you need. But what exactly is a secured loan, and what are secured loans used for? In this guide, we’ll explore the uses of secured loans and what you’ll need to consider before applying for one.
What is a secured loan?
A secured loan lets you borrow from a lender and use an asset – usually your property – as collateral. This provides lenders with security as, if you are unable to keep up with your repayments, they can take possession of your asset as a way to recover their funds.
With a secured loan, you’re more likely to be offered higher borrowing limits and lower interest rates, as lenders have the added security of being able to reclaim their funds should they need to. Secured loans are commonly used for making large purchases or consolidating debt.
What is the difference between a secured loan and an unsecured loan?
An unsecured loan is not attached to any form of collateral or asset. As there’s no guarantee that lenders can get the funds back should you fail to repay the loan, unsecured loans are considered a higher risk for lenders.
Unsecured loans often come with lower borrowing limits and higher interest rates compared to secured loans, and the amount a lender is willing to fund you will depend on your creditworthiness. You’ll generally need a good credit score to be approved for an unsecured loan.
How do secured loans work?
Secured loans work similarly to other types of loans. The main difference is that should you fail to make repayments, lenders have the added security of claiming back funds by using your assets as collateral.
The application process for a secured loan will vary depending on the lender and what sort of secured loan you are applying for. Generally, to begin the process, you’ll apply to borrow a set amount of money. The lender will then evaluate your financial situation and the value of your collateral when determining how much they are willing to lend.
Once your secured loan has been approved, you’ll agree to a monthly repayment plan and the funds will be deposited into your account. If you fail to make your repayments on time and in full each month, you could put your collateral, such as your home, at risk.
What can you use a secured loan for?
Secured loans are incredibly versatile and can be used for a variety of purposes, including:
- Home improvements: One of the most popular reasons for taking out a secured loan is to fund home improvements. Whether it’s renovating your kitchen, adding an extension or converting your loft, these projects can act as an investment in your home and increase the value of your property.
- Major purchases: A secured loan can be used for financing large, one-off purchases such as buying a car or motorbike.
- Debt consolidation: If you’re managing multiple debts with high interest rates, a secured debt consolidation loan can help you simplify your debt into one manageable monthly repayment.
- Education expenses: People may want to seek additional funding to help cover tuition fees or other educational pursuits for their children.
- Emergency expenses: If you are faced with unexpected costs such as pricey home repairs or essential work on your car, a secured loan could help ease the pressure on your finances.
gainst the equity in your home, which is repaid once your property is sold when you die or go into long-term care. Typically, this is only available if you’re aged 55 or over.
What are the pros and cons of secured loans?
As with any other financial product, you’ll need to consider the advantages and disadvantages of a secured loan before applying for one. How beneficial a secured loan could be will depend on your circumstances, such as what you want to use a secured loan for and how long you’d like to be repaying the debt.
Advantages of secured loans:
- Higher borrowing limits: Secured loans often provide access to larger funds, in comparison to unsecured loans.
- Lower interest rates: As lenders have the security of your collateral, you’re likely to be offered more competitive interest rates.
- Flexible usage: What you can use a secured loan for can vary greatly, giving you many options to find the right loan that is fit for purpose.
Disadvantages of secured loans:
- Risk to your collateral: If you fail to keep up with your repayments, you could be at risk of losing your home or other valuable assets.
- Long-term debt: Agreeing to a longer repayment period could mean that you end up repaying more interest over time.
- Eligibility criteria: Lenders may have strict requirements when it comes to approving a secured loan, such as the value of your collateral and your credit history.
What to consider before applying for a secured loan
Ahead of beginning the application process, there are a few things you should consider:
- Your current financial situation: Ensure you can afford the monthly repayments, as missing payments could put your property at risk.
- Borrowing responsibly: It’s vital to think about the long-term implications of taking out a financial product, so make sure you only borrow what you need and avoid overextending yourself financially.
- Comparing loans: No two loans are the same, so take the time to thoroughly research the options available. Longer terms may mean smaller monthly repayments, but you could have to pay higher amounts of interest in the long run.
- Understanding the long-term commitment: Make sure you are comfortable with the terms of your agreement, as you could be required to make repayments for several years.
As Richard Prescott, Loan Manager at Evolution Money, says:
“Before applying for a secured loan, it’s essential to have a clear understanding of your financial goals and what you want to use the secure loan for. Secured loans are a serious commitment, so carefully evaluate whether the asset you’re securing, such as your home, is worth the risk. Our specialists are on hand to offer expert advice to help you find the right financial product that works for you, as a well-informed decision now can save you from financial stress in the future.”
How to apply for a secured loan with Evolution Money
We hope that this comprehensive guide has provided you with a good understanding of what secured loans are and what secured loans are often used for. If you think that a secured loan could be the right option for you, you can check your eligibility with us today without impacting your credit score.
We’re proud to have helped over 30,000 customers find the flexible funding they’re looking for and can lend between £5,000 and £100,000 over repayment terms of 3 to 20 years. You can find out what our customers have to say about our stellar service by checking out our positive reviews.
Looking for additional tips to help you manage your money? Take a look at our handy help and advice hub for more information.
Representative 22.93% APRC variable.
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
