The Very Basics

If we start at the absolute beginning, a secured loan is any loan thats purpose is used as collateral, for example, a house. If the borrower does not make the previously arranged payments, the lending institution (perhaps a bank) can simply take the collateral as the repayment for the loan. For this reason, secured loan rates are usually significantly lower than that of loans that are unsecured.

The Numbers

The average secured loan will vary, ranging between £3,000 and £50,000, but have been seen as high as £250,000 depending on the property in question. The payment amount will depend on the amount borrowed and the APR (also known as the Annual Percentage Rate, which is the amount the lender charges the borrower for granting the loan), and the loan’s term or length. Payments are generally paid monthly for between 3 and 25 years. APR’s are usually lower when the loan is taken out for a shorter period of time.

The Credit History

The history of your payments, including those on time, late, in-full and partial are all key to the rates you’ll be charged for a secured loan. If your credit report is well maintained and free from late payments and such, the interest rate a lender will charge you will be significantly less than someone who makes the same amount of annual income, buying a similar property, and has a credit report full of blemishes. Strong credit histories and scores qualify for the absolute best loan programs, such as 125% loan-to-value (borrowing more money than the home is worth).

The Future Credit History

A generalized rule of thumb is to make sure that you can afford the loan payments of your new secured loan to protect both your property and your credit history. If you’re late on your payments by even a few days, late fees may be added to your payment and a black mark may be added to your credit history.

If you’re interested in a secured loan to combine all of your smaller credit card bills onto one payment, be sure to cut up the cards after you’ve paid the balance, or at least hide them from yourself for a very rainy day. Many times, an open line of credit is an open invitation for a shopping spree, so be sure to have the self discipline necessary to make it work, otherwise you could end up in a deeper hole.