A secured loan offers many perks to its owner. Firstly, a large sum of money can be borrowed for any purpose, with some lenders approving loans up to the value of £100,000. Secondly, the interest rate on the borrowed sum is much lower when compared to it unsecured counterpart. Thirdly, the repayment term of such a loan can be as long as 25 years. Such a loan can be approved with a few days and the money can be used for a variety of pursuits, such as foreign travel, a new car or to build an extension on a home.

Why are the features so favourable and who can access them?

When lending money under the conditions of secured loans the lender takes on very little risk, thus unlike with an unsecured loan the lender has little need to build a provision to allow for the risk of bad debts.

The reason that the lender has minimal risk is that to gain access to a secured loan, an applicant must offer an asset to act as a security against the value of their loan. This asset will be perfectly safe, providing the borrower adheres to the terms and conditions for their loan. Simply, this means they need to pay their instalments on time. However, if a borrower is unable to pay their instalment one month, the lender may agree to allow this. This is another benefit that arises from the low risk a lender takes on when providing a secured loan.

Secured borrowing - the risks

The risks associated with secured lending are non-existent for careful and thoughtful borrowers. Such borrowers will have made a financial plan to ensure they can fulfil the repayment demands. However, for a borrower who has hastily taken on a secured loan the story is rather sinister. If a borrower repeatedly breaches their credit agreement by missing many repayments, the lender will seize their secured asset. This will then be sold on to enable to insurer to recover their debt. However if a borrower is realistic about their repayment capability, this is unlikely to happen, especially with the favourable rates on such a loan. To eliminate this risk completely is may be worth considering taking out an income protection policy. This will not only cover the loan repayments but also other outgoings, should a borrower loose their job, because of redundancy, illness or injury for example.

How the term, rate and sum of a loan is decided

To be offered the best interest rate, terms and the highest loan value a borrower will need to have a good credit rating. A lending provider will also take into account a borrower’s repayment capability, the value of equity in their secured asset and the intended purpose for the loan.

A bad credit borrower may also access secured lending if they are a homeowner. The terms and rate offered will be far better than other bad credit lending options, but they will be less favourable when compared with standard secured lending.

Deals vary enormously between providers. To get the best deal it is essential to compare the loans offered by numerous lenders. The Internet is a good place to start the search for a loan provider. Furthermore, deals approved online may be subject to better terms and rates than for an equivalent deal processed via the phone or in person.