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A secured loan is a loan offered by a lender, where the borrower offers some sort of property as security. In personal finance this security is usually their home. Because the borrower is offering security to the lender, secured loans are seen as lower risk to lenders than unsecured finance – which is finance offered without any security such as credit cards, personal loans and overdrafts.

Secured loans are offered at lower interest rates than unsecured loans as a result. Secured loans can be a quick and flexible way to arrange finance at competitive rates; however Secured loans like a mortgage allow the lender to take a legal charge over the property offered as security. This charge gives the lender a legal right to take possession of the property if the borrower fails to repay the debt. Once the lender takes possession they can sell the property and recover the debt from the sale proceeds.

 It is important that you speak to an expert such as Mortgage Meadow before you consider taking out a secured loan. This type of finance requires specialised knowledge and advice to ensure you are fully informed about the risks and most importantly that you happy that you are getting the right deal to meet your circumstances.

If the property offered as security already has a mortgage secured on it. The mortgage lender has what is called a first charge on the property. The secured lender will then take a second charge on the property. The secured loan lender must notify the first charge holder that they are taking a second charge on the property. The priority of charges is important, in the event of sale or default, the first charge holder has a legal right to have their debt repaid from the sale proceeds first. The second charge holder then has the legal right to have their debt cleared by the reminder of the sale proceeds. If there is a third charge holder they have the legal right to have their debt repaid next. This continues until there are no charge holders left. What is then remaining from the sale proceeds will be paid to the borrower.

 Because a mortgage lender will always hold a first charge over a property, mortgage finance will always be cheaper than a secured loan. However because a secured loan will often have no upfront costs and does not involve you remortgaging your property or having to sell your property to raise funds, there are many situations where a secured loan can be beneficial to an individual.

 Like any other form of credit, failure to repay a secured loan will have a negative effect on your credit worthiness and will impact on your ability to borrow in the future. Conversely, where you have suffered from credit problems in the past, maintaining the repayments of a secured loan can be a means of helping you to improve your credit worthiness, helping you to obtain finance in the future at lower interest rates and at preferential terms.