What is Secured Loan?

Full Definition

A secured loan is borrowing backed by a specific asset -- most commonly a homeowner's property, via a second charge on the home in addition to any existing mortgage -- which gives the lender a legal right to repossess and sell that asset to recover their money if the borrower fails to keep up repayments. Because the lender's risk is reduced by having a specific asset to fall back on, secured loans typically offer lower interest rates, larger borrowing amounts, and longer repayment terms than unsecured borrowing such as a personal loan or credit card, which can make them attractive for large expenses like home improvements or debt consolidation. The key trade-off is risk: defaulting on a secured loan can ultimately lead to the loss of the secured asset (commonly the borrower's home) through repossession, which is a materially more serious consequence than defaulting on most unsecured debt, where a lender generally cannot force the sale of a specific asset without first obtaining a County Court Judgment and then a separate charging order. Anyone considering a secured loan, particularly a second charge loan sitting behind an existing mortgage, should compare the total cost carefully against remortgaging or further borrowing options from their existing mortgage lender, and take independent advice given how much is potentially at stake if repayments cannot be maintained.

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