What is a secured loan?

Updated:May 14, 2026

6 min read

A secured loan is a loan tied to an asset you own, usually your home. The lender uses that asset as security against the amount they lend you. If you fail to keep up with repayments, the lender has the legal right to repossess and sell the asset to recover what they're owed. Because the lender carries less risk, secured loans can come with lower interest rates, higher borrowing limits, and longer repayment terms than unsecured loans. The trade-off is that while the lender carries less risk, the ultimate risk to the borrower is losing their home.

How does a secured loan work?

When you take out a secured loan, the lender registers a legal charge against your property. This gives them a legal claim over it for the life of the loan. You borrow a fixed sum, repay it in monthly instalments over an agreed term, and the charge is removed once the loan is fully paid off. Interest is charged on the outstanding balance throughout. If you already have a mortgage, a secured loan on the same property is called a second-charge mortgage or homeowner loan. It is a secondary claim on the property, sitting behind your mortgage. If you default and the property is sold, your mortgage lender is repaid first from the proceeds, and the secured loan lender takes what remains.

When comparing secured loans, you'll also see costs quoted as an APRC (Annual Percentage Rate of Charge) rather than a standard APR. APRC includes all compulsory fees and charges over the full loan term, not just the interest rate, giving a more complete picture of what the loan will actually cost. It's the standard comparison metric for secured loans and second-charge mortgages in the UK, required under the Mortgage Credit Directive.

What can I use as security?

In the UK, most secured loans use residential property as security. This can include your main home or a second property. To use a property as security, you need equity in it. Equity is the difference between what the property is worth and what you still owe on your mortgage. The more equity you have, the more you may be able to borrow. Some lenders, such as credit unions, offer savings-secured loans where your savings account serves as collateral, however these are less common than property-secured loans. One point worth noting: car-secured personal loans are common in the US but are not a mainstream personal loan product in the UK. UK car finance (PCP and hire purchase) is a different type of credit with different terms and liabilities.

What's the difference between a secured and unsecured loan?

The main difference is collateral. A secured loan requires you to put an asset on the line. An unsecured personal loan does not.

Feature	Secured loan	Unsecured loan
Collateral required?	Yes, typically your home	No
Typical interest rates	Lower	Higher
Typical borrowing amounts	Typically higher than unsecured; determined by your equity and lender criteria	Typically lower than secured; exact maximums vary by lender
Approval focus	Property equity and affordability	Creditworthiness and income
Consequence of default	Lender can repossess your asset	Credit damage, debt recovery action
Typical repayment term	1 to 25 years, though some lenders go up to 40 years	1 to 7 years, though it can be higher

With an unsecured loan, the lender has no direct claim on your assets if you stop paying, but they can pursue the debt through the courts and the default will negatively impact your credit file. Read our guide on what an unsecured loan is to compare in more detail.

What are the risks of a secured loan?

The central risk is straightforward: if you fail to keep up with repayments, the lender can seek to repossess your home. Repossession is a last resort, but it is a real outcome. Other risks worth understanding:

Higher total cost over a long term. Secured loans can run for up to 40 years. A lower interest rate stretched over a very long term can mean you pay significantly more in total interest than you would on a shorter-term unsecured loan.
Impact on remortgaging. A second charge on your property is visible to other lenders. This can affect your ability to remortgage or switch mortgage providers, as a new lender will see the outstanding secured debt.
Selling your property. You will need to repay the secured loan from the proceeds of any sale, alongside your mortgage. If the sale price falls short of your combined balances, you could still owe money after the sale completes.
Early repayment charges. Some secured loans include a fee for paying off early. Check the terms before signing.

Is a mortgage a secured loan?

Yes. A mortgage is the most common form of secured loan in the UK, where the property itself acts as the security. If mortgage repayments are not kept up, the lender can repossess the home. The terminology reflects where the loan sits legally:

- A first-charge mortgage is the primary loan secured against the property

- A second-charge mortgage (also called a second mortgage or homeowner loan) is a separate loan taken out on the same property, sitting behind the first mortgage in terms of priority of repayment. Both are regulated by the Financial Conduct Authority. First-charge mortgages fall under the FCA's Mortgage Conduct of Business (MCOB) rules. Second-charge mortgages came under similar FCA regulation on 21 March 2016, when the Mortgage Credit Directive was implemented in the UK.

FAQs

What are secured loans used for?

Secured loans are most commonly used when someone needs to borrow a larger sum than they can access through an unsecured personal loan, or wants a lower interest rate and is prepared to use their home as security. It can also be an alternative for people who have a poor credit score and are less likely to be accepted for unsecured loans. It’s not the only way to get credit with an adverse credit history, but using security can be one option.

Are secured loans easier to get?

Not necessarily, but the approval criteria are different. Lenders place significant weight on the equity in your property alongside your credit history and income. Some people find secured borrowing accessible when a large unsecured loan is not available to them, but a poor credit history will still affect the rate you are offered. Lenders are required to assess whether the loan is affordable before approving it.

What should I consider when deciding on a secured loan?

You should consider what you need and whether you are comfortable putting your home at risk.

But the stakes are higher than an unsecured loan. Before committing, calculate the total amount repayable over the full term, not just the monthly payment. Consider whether an unsecured personal loan or a guarantor loan could meet your needs with lower personal risk.

Does a secured loan affect my mortgage?

It can. A second charge on your property is visible to mortgage lenders and may affect your ability to remortgage or switch providers. Some mortgage agreements include restrictions on additional secured borrowing. Check your mortgage terms or speak to a mortgage broker before taking out a secured loan.

How many secured loans can I have?

There is no specific legal limit, but each additional loan places another charge on your property. Lenders will assess your total outstanding debt, remaining equity, and affordability before approving further borrowing. In practice, holding multiple secured loans alongside a mortgage significantly reduces the equity available to you.

What happens if a secured loan is not repaid?

If you fall behind, your lender may try to agree a repayment plan with you. If arrears remain unresolved, they can begin legal proceedings and ultimately apply to repossess your property. If you are struggling, contact your lender as early as possible. Free debt advice is available from StepChange and Citizens Advice.

What happens to a secured loan when a house is sold?

The loan must be repaid from the sale proceeds at completion. The charge is removed from the title once both your mortgage and secured loan are repaid in full. If the sale price does not cover the outstanding balances, you will still owe the remainder to the lender.

What type of interest is applied to a secured loan?

Most secured loans charge a fixed rate, so your monthly repayments stay the same throughout the term. Some lenders offer variable rate products, where the rate can rise or fall. Fixed rates give more certainty over your total cost. Variable rates may start lower but carry the risk of increasing over time.

There are a range of financial products available that may suit your needs. We encourage you to research your options carefully and consider seeking independent financial advice before making any decisions. This blog is for informational purposes only and does not constitute financial advice.

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