Secured loans let you borrow more money because you use something valuable, like your home, as security. How much you can borrow depends on different factors, like how much your home is worth,  your earnings, and credit score. This guide explains these factors and shows you how to get the most out of your secured loan. 

What is a secured loan and how does it work? 

One of the most commonly asked questions is, “What is the difference between a secured and unsecured loan?”. A secured loan is when you borrow money and use your property as security. However, it’s important to understand that the lender can take the property if you can’t meet your loan repayments. Secured loans are often used for larger amounts of money because the lender has less risk. They also usually have lower interest rates than unsecured loans, making them a popular choice for big projects, like home improvements or paying off debt. However, by taking a loan over a longer period of time, you could pay more over the lifetime of the loan. Find out more with this secured loan guide. 

Key factors that determine how much you can borrow 

Here’s a look at what lenders consider when deciding how much you can borrow: 

  1. The value of your property

The biggest factor is how much your property is worth. Lenders will check how much your home is worth and how much you still owe on your mortgage. The difference between the two is called equity. Generally, you can borrow up to 80-90% of your equity, but this depends on the lender. 

  1. Your income

Lenders also want to know if you can afford to repay the loan. They’ll look at your income and compare it to your other debts (like credit cards or existing loans). If you earn more and don’t have a lot of other debts, you might be able to borrow more. 

  1. Your credit history

Your credit score matters, too. If you have a good credit score, it shows that you’ve been good at paying off loans in the past. This can help you borrow more money at a lower interest rate. If your credit isn’t great, you might still be able to get a loan, but you may have to pay a higher interest rate. 

Common borrowing limits for secured loans 

Secured loans typically range from £3,000 to £100,000. For high-value homes, some lenders may even offer loans over £100,000, and even up to £1 million. 

For example, if your home is worth £300,000 and you still owe £100,000, you might be able to borrow up to £200,000. This depends on the lender’s rules, so make sure to compare different options. 

How to choose the right loan amount for your needs 

When deciding how much to borrow, think about: 

  • Why you need the loan: Are you funding home improvements or paying off debts? Only borrow what you truly need to avoid paying unnecessary interest. 
  • Can you afford the repayments?: Use loan calculators to check how much your monthly payments will be. Remember to factor in other regular costs, like insurance, groceries, and bills to make sure you can afford it. 
  • Interest rate: A lower interest rate means you’ll pay less in the long run. Compare interest rates from different lenders before choosing a loan. 

Understanding repayment terms for larger loans 

With a larger loan, you’ll likely have a longer repayment period. This helps keep monthly payments lower but means you could end up paying more in interest over time. 

  • Longer repayment periods: These reduce your monthly payments but increase the total interest you pay. 
  • Shorter repayment periods: These increase monthly payments but save you money on interest. 

It’s important to find a balance between what you can afford and the total cost. 

How to apply for a secured loan

Contact an expert broker to discuss your needs if you want to apply for a secured loan. The process typically involves: 

  1. Check your eligibility

Before applying, check if you meet the basic requirements. You need to be a homeowner with a stable income, whether you’re employed or self-employed.  

  1. Complete the application

At this stage, you must share your personal information, financial details, and documents like proof of income or property value. A broker will also check your property’s equity. 

  1. Documentation and approval

After you submit your application, the lender will review it. If everything meets their criteria, your loan will be approved, and the funds will be sent to you.  

Conclusion 

A secured loan is one option if you need to borrow more money at a lower interest rate. Understanding how much you can borrow depends on your property’s value, income, and credit score. You can finance major expenses like home improvements or debt consolidation with the right loan amount. 

Before applying, make sure to shop around and compare offers. It’s important to choose a loan that best suits your financial situation. 

Mortgage brokers can provide you with various options for secured loans with flexible terms and competitive rates.