Secured Loan FAQs

What are secured loans?

The term secured loan’ refers to any type of loan that’s provided on the basis of the applicant providing collateral, aka security. In most instances, secured loans are granted in accordance with the value of the borrower’s property. If your home is valued at £100,000, you may be able to borrow 75% of its value as a secured loan — £75,000. Such loans are issued on the condition that, should the borrower fail to repay the loan, the lender is legally entitled to take ownership of the property.

In some instances, secured loans are offered upon the provision of different types of collateral. Jewellery, luxury watches, vehicles, business assets, fine art, and personal effects in general may be used to secure a loan. It may also be possible to combine multiple assets to cover the cost of one secured loan. As the full cost of the loan is secured with the borrower’s collateral, a secured loan can typically be offered at a comparatively low rate of interest. Loans secured on acceptable collateral are considered low-risk loans and can be relatively straightforward to organise.

What is the difference between secured and unsecured loans?

Secured loans are provided on the basis of collateral. By contrast, unsecured loans do not require the borrower to provide collateral to cover the cost of the loan. Instead, unsecured loans are granted on the basis of the borrower’s credit score, financial status, proof of income, employment history, and so on.

As a result, applying for and successfully receiving an unsecured loan can be more difficult and time-consuming. Irrespective of collateral or otherwise, a credit check alone could be enough to exclude an applicant from consideration. Poor-credit unsecured loans are available, though they typically have excessively elevated overall borrowing costs. Unsecured loans are provided subject to status, with interest rates and overall costs varying from one applicant to the next.

If the applicant is self-employed, has a poor credit history, or is unable to provide proof of income, an unsecured loan may be out of the equation. In addition, unsecured loans are typically offered in smaller sums, perhaps up to a maximum of £20,000.As the applicant isn’t required to provide collateral to secure the loan, their property is not at risk in the event that they fail to repay the loan as agreed.

What is a good secured loan rate?

A good secured loan rate is between 4% and 8% APR for a loan term of 5 to 7 years. However, the best rate you can qualify for will depend on your credit score, the amount of equity you have in your home, and the lender you choose. You can shop around for the best rate by comparing offers from multiple lenders.

How risky is a secured loan?

Secured loans are less risky for lenders than unsecured loans because the lender has the right to seize the collateral if the borrower defaults on the loan. This makes secured loans more attractive to lenders, which is why they typically offer lower interest rates than unsecured loans. However, secured loans also pose a greater risk to borrowers, as they could lose their collateral if they default on the loan. Therefore, it is important for borrowers to carefully consider their financial situation before taking out a secured loan.

What is the most common secured loan?

The most common secured loans are mortgages and car loans. Mortgages are loans that are used to finance the purchase of a home, and they are typically secured by the home itself. Car loans are loans that are used to finance the purchase of a car, and they are typically secured by the car itself.

What banks offer secured personal loans?

Secured personal loans are surprisingly difficult to track down on the UK high street. In fact, there are only a couple of names, such as Masthaven Bank and Shawbrook, that provide access to flexible and convenient secured personal loans. Mortgages and similar home loans are widely available, but all-purpose secured personal loans are much thinner on the ground. As a result, it’s always advisable to look beyond the High Street if considering applying for a secured personal loan.

There are dozens of independent lenders across the UK that specialise primarily or exclusively in these kinds of loans. As a result, they’re often able to provide secured personal loans with much more competitive overall borrowing costs than their high-street counterparts. In addition, specialist lenders are far more flexible and accommodating when it comes to subprime applicants. If you have poor credit or you’re unable to provide proof of income, you’re unlikely to qualify with a major lender.

With independent secured loan specialists, all that matters is covering the cost of the loan with acceptable collateral. This is ideal if you are looking to borrow a considerable sum while dealing with an imperfect credit score.

How do I apply for a secured loan?

Applying for a secured homeowner loan with Donkey Finance could not be easier. Once you have worked out how much you can realistically afford to borrow and pay back, you can either use our online application form and request a call back or get in touch with one of our FCA-authorised advisors directly over the phone and let them guide you through the entire process.

Once the first stage of your application is complete, we will search the entire market on your behalf in order to ensure you get the most competitive deal based on your individual needs and borrowing criteria.

Will I be accepted for secured finance?

Provided you are a UK resident, aged 18 years or older, and either own your home outright or you have a mortgage and there is enough equity left over to act as security for the loan, your chances of being approved for a secured loan with Donkey Finance are actually quite high. Even if you have had cash flow problems in the past or are self-employed and have found it difficult to obtain finance elsewhere, we will search the entire market to find the most suitable product for your needs.

What happens when you are approved?

A decision can be made in a matter of minutes, and once your application has been approved, there is very little paperwork involved, and the funds can be transferred directly to your bank account in a matter of weeks or days. Even if you have been turned down for credit in the past, because the loan is secured, you still have an excellent chance of being approved. However, it is important to realise that there is a very realistic probability that your home will be repossessed if you deliberately avoid repaying the debt or miss a number of payments owing to unforeseen circumstances.

Of course, this only happens as a last resort, and the vast majority of lenders will always work with you in order to resolve the issue of non-payment in the most amicable manner.

Are there risks with secured loans?

Unfortunately, many people choose to get secured loans without considering their other options. In some situations, an unsecured loan may provide a better solution. However, there are also times when lenders can receive a “charging order” to sell your home to recoup their payments on an unsecured loan.

The charging order does not automatically give lenders the right to repossess your home. They still need to complete another court filing. However, unsecured loans still make it harder for lenders to repossess your property compared to secured loans. Basically, a secured loan carries a risk to the borrower while lowering the risk for the lender.

What is the advantage of obtaining a secured loan?

Why do people risk their possessions for a loan? By offering collateral, lenders consider you at lower risk of failing to make your payments. As a lower-risk investor, you get lower interest rates and better deals. For those with low credit scores, a secured loan may be easier to get. However, those with good credit scores can often get better deals with unsecured loans. Along with providing a lending solution for those with bad credit, secured loans offer larger borrowing limits.

Secured loans are also often available with longer terms. Instead of needing to pay off your loan in one to seven years, you may get up to 20 years to pay off a secured loan. Keep in mind that increasing the term increases the total interest that you pay during the life of the loan. Loans are either secured or unsecured. Determining which option is right for your financial situation depends on your credit history, how much you want to borrow, and what you have available for collateral.

How do lenders determine interest rates?

The interest rates that you see advertised are not available to everyone. Your credit history and available equity or collateral impact the interest rates on your loan. Lenders also consider the size of the loan and the term. Lenders also develop loan products designed for different types of borrowers.

One lender may have the best option for those with bad credit, while another offers great deals for those with lots of equity. Many consumers do not fully understand how their credit scores are determined. If you know what is included in credit reports, you may take steps to improve your credit standing. You can pay down the debts that have the biggest impact on your credit score.

Your overall credit history includes a detailed look at your outstanding debts, including loans that you defaulted on. Your credit history also includes court orders related to payment failures and bankruptcies. These details influence your borrowing power. Equity also plays a role in how much you can borrow and the rates that you get. The value of your property minus the amount that you still owe on your mortgage equals your available equity.

Based on the details discussed, lenders will review your application and propose an interest rate. However, before you accept it, there are still a few more costs to consider. The application processing fees, legal fees, and various additional charges for your secured loan should be included in the final interest rate. The final interest rate is the APR. While you should compare APRs from multiple lenders, you also need to compare the cost of payment protection insurance (PPI).

Do you need payment protection insurance?

Another detail that impacts the total cost of secured loans are insurance that protects both you and the lender. PPI covers your payments if you get into an accident or become unemployed. PPI is not often included in the APR. Multiply the total monthly payments, including the PPI, times the length of the loan. Always compare at least three options before selecting a loan product, or use a loan broker for assistance in comparing options.

How can Donkey Finance offer the UK’s lowest secured loan rates?

By working closely with dozens of leading lenders across the UK, we provide exclusive access to the lowest secured loan rates on the market. By carrying out a comprehensive interest rate comparison for every customer, we’re able to pinpoint the perfect products to suit all requirements and budgets.

Donkey Finance operates as a different kind of comparison site, simplifying the process of tracking down high-quality secured loans for all purposes. For more information or to discuss your requirements in more detail, contact a member of the Donkey Finance customer support team today.