A secured loan is a way to borrow money against an asset you own – normally your home. Because of this, interest rates are often lower than a personal or unsecured loan. As with any loan, approach with caution and do your research – ask yourself if you’d be able to continue to make repayments if something unexpected happened.

Your existing mortgage is technically a secured loan. But the term is more commonly used for Homeowner Loans – also known as second charge mortgages or second mortgages.

Secured loans are often used to fund larger home improvements or for consolidating debts.

To qualify for a secured loan against your property, you must have an existing mortgage on your home. This is known as a first charge mortgage.

The amount you can borrow depends on your income, credit rating, and ability to pay back the loan – plus the equity in your property. Equity is the difference between the market value of your property and the balance left on your mortgage.

For example, if the value of your home is £500,000 and you have £200,000 left to pay on your mortgage – your equity is £300,000.

Some lenders sell secured loans direct to customers. For others including Pepper Money, you need to go through a broker. They can talk you through your options and give you their recommendation – whether that’s one of our loans, or somebody else’s

Potential advantages of a secured loan

Because the borrowing is secured against your property:

  • You can borrow larger amounts than you can through a personal unsecured loan
  • You can borrow over a longer period than a personal loan
  • The interest rate and monthly payments may be lower than a personal loan
  • It’s often easier to qualify for a secured loan. This is especially true if you have a less than perfect credit rating or an unusual source of income

If you don’t want to lose your current mortgage deal, taking out another secured home loan may be a better option than remortgaging. For example, you may have a great rate or interest-only mortgage.

What to consider before applying for a secured loan:

  • Your home may be at risk if you don’t keep up with your payments
  • Interest rates on a secured loan are often lower. But you may end up paying more overall because they’re over a longer period
  • Some lenders may charge hefty early repayment fees or charges

Secured loans for debt consolidation

A secured loan could be a good option for consolidating debts if you:

  • Owe a large amount and want to combine it into one monthly payment
  • Need to reduce your monthly payment amount

You should always take advice on the best way to manage your debts. There are other options available for smaller amounts. For example, a 0% interest credit card or a personal loan may be more suitable.

Secured loans for self–employed

Borrowing money when you’re self-employed can be tricky. This isn’t necessarily the case with a secured loan – because it’s secured against your property. Most lenders are comfortable lending to self-employed people, as long as your income can be verified.

The lender will normally ask for a few things – an accountant’s certificate, SA302s and income tax assessments. They’ll sometimes need your last two years’ accounts, too.