An unsecured loan can be a versatile and conveniently accessible financial tool for short-term borrowing requirements; however, unsecured loans are typically only available for relatively small sums and are repaid using regular monthly payments over an agreed-upon timescale.
With secured lending, significantly greater sums are often available for repayment over a much longer period of time. The most common example of a secured loan is a mortgage, wherein the applicant borrows to buy a home and repays the balance over 10 to 35 years.
Secured lending is the provision of security (aka collateral) by the applicant, which is used as an insurance policy to repay the loan. In the event that the loan is not repaid in full, the lender has the legal right to take ownership of the security, sell it, and use the proceeds to recoup their losses.
A secured loan therefore carries the risk of forfeiting assets but can nonetheless be beneficial in a variety of ways.
What are the benefits of secured lending?
The main benefits of secured lending are the option of borrowing a relatively large sum of money, and they are available for most legal purposes. If sufficient equity is available in your property to cover the loan amount should the loan default, you have a high chance of success.
Even poor credit and a lack of income (bridging loans only) may still be considered.
In addition, the reported average completion time for a secured loan at the end of 2020 was just 13 days. Repayment options are also flexible, allowing borrowers to repay the loan over their preferred period, dependent on affordability, anything from a few months (for bridging loans) to 40 years.
With competition among UK lenders at an all-time high, typical interest rates for secured loans are at the most competitive that they have ever been.
When is a secured loan the right option?
As for when a secured loan represents the ideal option, there are technically no legal limitations to where and how the funds can be used. Therefore, a secured loan could be the perfect option in any instance where the following is required:
Significant loan amounts: Secured lenders offer loans starting from £10,000 upwards, making secured loans ideal when you need to borrow a significant sum of money for a major purchase, project, or investment.
Long-term repayment: Being able to spread out the repayments on a secured loan over several years or decades provides the borrower with access to affordable monthly repayments.
Poor credit borrowing: As secured loans are typically issued primarily on the basis of security, it is possible to qualify for a competitive deal with a poor credit history or no credit history.
Business loans: As the vast majority of businesses have a variety of valuable assets at their disposal, secured loans can be used as competitive and versatile business loans for a long list of purposes.
If you can prove that you can comfortably afford the repayments on your loan, secured lending could enable you to access the funds you need at a competitive rate of interest.