A secured loan is a loan which is secured against some form of asset. Most frequently this will be your home, regardless of whether or not you own the home outright. If you do own your home outright this type of loan is know as a first charge, if you have an existing mortgage that this type of secured loan is known as a second charge. Secured loans are usually quicker to arrange and offer more attractive interest rates as the represent a safer option to the lender for money. Because the loan has the security of the equity in your home behind it, if you default on repayments the lender will be able to recover the money through selling your home. Due to the lower risk to the lender, people with a less than perfect credit history are more likely to be excepted provided there is enough equity in their homes. The secured loan is therefore a very attractive option for people with their own home, seeking competitive interest rates or those who have experienced problems getting credit in the past.

The first step in choosing a secured loan is decided what type of features will best suit your personal circumstances. Secured loans are available in varying amounts for a vast array of different purposes. The average amount a lender would be willing to offer ranges between fiver thousand and fifty thousand pounds, although some lenders have been known to offer up to the value of your current property. The amount you choose to borrow will then be repaid over a set time, just like your mortgage. This term can be anything from three years to twenty five years, through out which you will pay your monthly installments to lender. As with a mortgage often the interest rate that you will be quoted will not be fixed for the duration of the term of the loan. The rate may vary for a number of different reasons so you should always be sure that you can afford the repayments if the rates do change.

The amount of interest charged will vary from lender to lender and is known as the Annual Percentage Rate (APR). The amount you are eligible to borrow, how long the term of the loan is and the A.P.R will depend on the equity you have in your property. The lender will also consider your ability to repay the loan and your personal circumstances, for example your credit score. Depending on all of these factors you maybe able to borrow up to one hundred and twenty five percent of the current value of your home, should you wish. The lender will quote varying A.P.R rates dependant on the amount of money that you wish to borrow, by typically this rates will be common to other lenders offering the same form of loans. You should view the initially rates offered by the lender to the general market as a guide as you can often negotiate individual rates for your own personal loan. You should always try and compare the A.P.R's of different secured loans offered by different lenders as this will give you an idea of who is competitive and who is not.

You should always make sure that you understand the terms and conditions before you take out any loan, especially if there is an opportunity for you to repay the loan earlier and save some money. Early repayment of your secured loan can be costly as the lender will not be making as much money out of you as they had initially agreed. Secured loans usually are not flexible and overpaying to clear the debt quicker is often not allowed. If you do find that you have the money to pay off the loan in one lump sum, you should make sure that you only pay interest on the amount of time you have had the loan for, before you pay it off. Often lenders tout this as a benefit for their particular loan and it is not considered an industry standard. If your secured loan does not offer this feature, you could end up paying off the loan early but still having to pay interest on the original term of the loan. In addition there maybe early repayment penalties, which are essential fines which are charged if you try and pay off your loan early. This can be a major problem as the penalties can be expensive and are always enforced. If possible you should try and consider whether or not you will be able to pay off the loan sooner when you agree on the initial term as this can help avoid this situation. On the good side, recent changes in the law have stated that loans worth less than twenty five thousand can only have restricted early redemption penalties equivalent to two months interest. If you borrow larger amounts there is still no maximum limit to the interest and the penalties can be much higher. You may find that many larger loans have early repayment charges of up to 6 months interest for the first couple of years of the term of the loan. This then reduces on a sliding scale as you move further into the loan term. The key to avoiding early repayment charges is to choose the right amount of money you wish to borrow at the beginning. Once you have considered all of these factors you are in a better position to choose the ideal secured loan for you.