All About Secured Loans

If you’re thinking about searching for a loan, you might be confused by the many different options that could be available to you.
In this guide, Little Loans takes a deep dive into secured loans and provides answers to some of the questions you might have asked, including:

• What is a secured loan?
• How do secured loans work?
• Is a secured loan a good idea?
• What credit score do you need for a secured loan?
• What’s the difference between a secured and an unsecured loan?

What is a secured loan?

A secured loan is a type of personal loan that requires you to add an asset, such as your vehicle or home, to the loan for security. This is known as ‘collateral.’
You’ll still have full access to the asset you’ve used as collateral; however, if you miss a repayment, your asset could be sold by the lender.

How do secured loans work?

Here’s an example of how a secured loan could work. Please note that the following example is for illustrative purposes only.

1. You apply for a £2,000 secured loan to cover the cost of an essential expense.


2. Depending on your lender, you use your car or your property as collateral for the loan.


3. Your application is approved by the lender, and the money is sent to your bank account.


4. Your repayments, including interest, will need to be made in full and on time each month, throughout the duration of your chosen term until the loan is repaid in full.

Is a secured loan a good idea?

Only you can decide whether a secured loan is a suitable option for you.
You must be confident you can afford to make your repayments in full and on time each month.
In the section below, we’ll discuss some of the things to consider before you decide whether to search for a secured loan.

Things to consider before you search for a secured loan

• When it comes to secured loans, one of the most important things to be aware of is the risk involved. If you default on your repayments, the lender is within their right to seize and sell the asset attached to the loan to recoup the money lost.


• In addition to potentially losing your asset, a failed repayment could also result in added charges and a decline in your credit score.


• When you apply for a credit product, the lender will complete a creditworthiness assessment, which will include a hard search or an Open Banking check. A hard search will be visible on your credit file for up to 12 months, and undergoing multiple hard searches in a short period of time could harm your credit score.

What credit score is needed for a secured loan?

Eligibility criteria will vary between lenders, and there isn’t a specific credit score needed in order to apply for a secured loan. However, it’s worth noting that your credit score will play a big role in your chances of being considered for a loan, as well as the interest rate you’re offered.

Generally, the better your credit score, the greater the chance you have of being considered for a loan, although this is not a guarantee.

Could I get a secured loan with bad credit?

You could get a secured loan for bad credit, although this will depend on the eligibility criteria set by the individual lender.

Please be aware that a bad credit loan could come with a higher rate of interest, which will increase the overall cost of borrowing. You should bear this in mind and consider the impact this will have on your monthly budget before you decide.

Can you be declined for a secured loan?

Yes, you could be declined for a secured loan.
When you make an application for any credit product, the lender will carry out a creditworthiness assessment, which will provide them with insight into your financial history and how you’ve managed any past credit commitments.

The lender will make their decision based on the results of their creditworthiness assessment. As discussed, even with a perfect credit score, being approved for a loan cannot be guaranteed.

Secured loans v unsecured loans

In the table below, we’ve identified some of the key similarities and differences between secured and unsecured loans.

What should I do if I can’t repay my secured loan?

If you’re struggling to make the monthly repayments on your secured loan, you should contact your lender as soon as possible.
Don’t wait until you’ve missed a repayment; reach out as soon as you feel as though you might run into difficulty. The sooner your lender is aware of your situation, the sooner they can work with you to reduce some of the pressure you’re facing.

Money worries? Help is available

The following charities and organisations can provide free, confidential financial advice: StepChange, MoneyHelper, National Debtline, and Citizens Advice.