Secured Loans

Secured loans are commonly used to borrow large sums of money because they come with lower interest rates. However, because they are backed by collateral, like a property or vehicle, you may be at risk of losing your assets if you fail to keep with your repayments.

In this guide, we’ll cover everything you need to know about secured loans, including what they are, how they differ from unsecured loans, and what can happen if you don’t pay.


Secured loan debt can place significant financial strain on individuals and households. Secured loans, unlike unsecured loans, require collateral such as a property or a vehicle.

They’re commonly used to borrow larger sums of money, however if borrowers are unable to meet the monthly repayments, they risk losing their assets.

In this article, we explore the various types of secured loans, discuss the distinctions between secured and unsecured loans, and delve into the debt solutions available in the UK for those facing overwhelming secured loan debt.

What are secured loans?

Secured loans are a type of borrowing where the loan is backed by collateral, typically an asset such as a property, vehicle, or savings account.

The collateral acts as security for the lender, providing them with an asset to seize and sell if the borrower fails to repay the loan.

One of the key advantages of secured loans is that they often come with lower interest rates compared to unsecured loans.

Lenders are willing to allow people to borrow money at lower rates because the collateral reduces the risk they face.

When considering secured loans, it’s crucial to compare secured loans, lenders, and different loan options.

Factors such as interest rates, loan terms, fees, and the reputation of the lender should be carefully evaluated.

That said, it’s also essential to recognize that secured loans carry the risk of losing the asset if repayments are not made as agreed.

Therefore, borrowers should carefully assess their ability to make the required payments before committing to a secured loan.

Common types of secured loans

There are various forms of secured loan available in the UK. We’ve listed three of the most common types below.


Mortgages (sometimes referred to as homeowner loans) are secured loans used to finance the purchase of a property.

The property itself serves as collateral for the loan.

A mortgage lender will provide the funds that allow you to purchase your home, and in return you will make monthly repayments over a specified term.

Failure to repay the mortgage can result in the lender repossessing the property.

Car or auto loans

Car or auto loans are secured loans used to finance the purchase of a vehicle. The vehicle acts as collateral, and if the borrower defaults on the loan, the lender can repossess the car.

Monthly repayments are made over a predetermined period until the loan is fully repaid, after which you may be able to take full ownership of the vehicle depending on the terms of your agreement.

Debt consolidation loans

Debt consolidation loans are a type of secured loan used to consolidate multiple debts into a single loan with a lower interest rate.

By securing the loan against an asset, such as a property, borrowers may be able to reduce their monthly repayments and simplify their debt management.

However, it’s important to be cautious with a secured debt consolidation loan and ensure that you can afford the repayments, otherwise you risk losing the asset used as collateral.

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

Understanding the difference between secured and unsecured loans is essential for borrowers, as it determines whether collateral is required, and will also have an impact on factors such as interest rates, loan amounts, and repayment terms.

Secured loans

As mentioned previously, a secured loan is backed by collateral, which is typically an asset owned by the borrower, such as a property or vehicle.

The collateral acts as security for the lender, providing them with a guarantee in case of default.

Secured loans often come with lower interest rates since the collateral reduces the lender’s risk.

If the borrower fails to repay the loan, the lender can seize and sell the collateral to recover the outstanding amount.

Unsecured loans

An unsecured loan does not require collateral and is based solely on the borrower’s creditworthiness and ability to repay.

Without the collateral, lenders rely on the borrower’s credit history, income, and other factors to assess the risk.

Unsecured loans often have higher interest rates than secured loans as the lender has no asset to secure against default.

Personal loans are a common type of unsecured loan. An unsecured personal loan allows borrowers to obtain funds for various purposes without providing collateral.

Why do people take out secured loans?

Secured loans are often used to help people with larger, more significant purchases like buying a new house or making significant home improvements.

Due to their low-interest rates, some people also turn to secured loans in a bid to consolidate their debts and it can be a popular option for those who haven’t managed to secure a loan elsewhere.

However, when considering a secured loan, it’s important to be realistic about your ability to repay what you borrow.

A secured loan is considered to be a priority debt and should always be treated as such to avoid your home being repossessed.

Can you pay a secured loan early?

Yes, it is often possible to pay off a secured loan early. However, it’s important to review the terms and conditions of the loan agreement as some lenders may impose early repayment charges or fees.

Early repayment charges are fees imposed by lenders to compensate for the interest they would have earned if the loan had been repaid over the agreed-upon term.

These charges can vary depending on the lender and the specific terms of the loan.

Before deciding to pay off a secured loan early, borrowers should consider the potential costs involved.

It may be beneficial to calculate whether the savings on interest outweigh the early repayment charges.

If the charges are significant, it might be more cost-effective to continue with regular repayments until the loan term is completed.

What happens if I don’t pay a secured loan?

If you fail to pay a secured loan, several potential consequences may occur.

Late payment fees and charges

Missing or delaying payments on a secured loan can result in late payment fees and additional charges imposed by the lender.

These fees can increase the overall debt amount, making it more difficult to repay.

Potential repossession

One significant difference between secured and unsecured loans is that, unlike unsecured debt, the lender has the right to repossess the collateral if you default on a secured loan.

For example, if you fail to make mortgage payments, the lender may initiate foreclosure proceedings and seize the property.

Damage to credit score

Failure to repay a secured loan will negatively impact your credit score. Late or missed payments, default, or repossession can all be reported to credit agencies, leading to a decrease in your credit score.

A lower credit score can make it more challenging to access credit in the future and may result in higher interest rates or unfavorable loan terms.

How can I avoid secured loan debt?

There’s no denying that for many people a secured loan is a simple way of borrowing money for luxury expenses or to consolidate debts already owed.

Below are some steps you can take to ensure you don’t fall into financial difficulty should you opt for a secured loan.

Prioritise your debts

If you owe more than one debt it’s important to ensure you pay them in order of priority.

A secured loan is considered to be a priority debt and can have serious consequences if you fail to pay – including having your home repossessed.

As such it should always be one of the first payments you make each month.

Set a budget

Secured loans typically come with a set payment amount over a specified period of time. Be sure to take this into account in your monthly budget to ensure that you have enough cash to cover the amount owed.

Don’t hide from your secured loan lender

If you find yourself unable to make a payment towards your secured loan it’s vital that you stay in touch with the loan company.

If your situation changes and you know you’re going to struggle to make a payment, let the company know and come to an arrangement to prevent the company from taking action against you.

What should I do if I’m already in secured loan debt?

If you find yourself in secured loan debt, there are several steps you can take to manage the situation effectively.

Negotiate with the lender

Start by contacting your lender to discuss your financial difficulties and explore potential options.

They may be willing to work with you on revised repayment terms, such as extending the loan term or temporarily reducing payments.

It’s important to communicate openly and provide documentation of your financial situation to support your case.

Debt Management Plan (DMP)

A Debt Management Plan (DMP) is an informal agreement between you and your creditors to make reduced monthly payments based on your affordability.

This plan can help you consolidate your existing debts, including secured loan debt, into a single affordable payment.

DMPs can be administered by reputable debt management companies who negotiate with your creditors on your behalf.

Individual Voluntary Arrangement (IVA)

If your secured loan debt, along with other debts, is overwhelming and you’re struggling to make payments, an Individual Voluntary Arrangement (IVA) may be an option.

An IVA is a legally binding agreement between you and your creditors, setting out reduced payments over a fixed period (typically five to six years).

This allows you to repay a portion of your debts, and at the end of the arrangement, any remaining debt is usually written off.

Where can I get free debt advice and guidance on secured loans?

When dealing with unaffordable secured loans, taking proactive steps and seeking support is the best way to ensure a more manageable debt situation and a path towards financial stability.

Talk About Debt can help. Our team of advisors have years of experience helping people handle payday loan debts and protect their assets from lenders.

If you’re struggling to pay back a secured loan and need reliable debt advice, get in touch with one of our team today.

Key Takeaways

Secured loans are backed by collateral which your lender can sell to recover they money they are owed if you don't pay

Common types of secured loans include mortgages, car loans, and debt consolidation loans

There can be serious consequences for failing to repay a secured loan and, in extreme cases, your assets will be repossessed

You can avoid secured loan debt by prioritising your debts, setting a budget, and maintaining regular communication with your lender

If you're already in secured loan debt, consider a debt solution like a DMP or an IVA