What is a secured bank loan?
A secured bank loan is another word for a secured loan, which is offered by the bank. Secured bank loans are loans where a customer borrows money, which is lent to them against an asset, which will normally be equity in a home.
Should you fail to keep up with your repayments on a secured bank loan, the bank are entitled to seize and sell your home, taking the money they are owed, plus any costs from the sale price. People taking out a secured loan should be aware that they risk losing their home if they fail to keep up their monthly repayments.
Do I qualify for a secured bank loan?
To get a secured bank loan you will need a reasonably good credit score, and something to secure the loan against. Generally speaking this will be equity in a home, but in some situations a bank may accept jewellery, a painting, a car or another asset as security.
To borrow £10,000, you will need £10,000 worth of equity to secure your loan against, and permission from your mortgage lender, who may be using that equity as their own security in their lending risk assessment.
To work out how much equity you have in your home, you need to know how much your home is worth, and any outstanding debts, like your mortgage you have on your home.
Example – Richard owns a £200,000 house and has a £150,000 mortgage. He therefore owns 25% of the house outright, and has £50,000 equity in his home. Richard should have no problem securing a secured bank loan for £10,000 against the equity in his home, assuming his credit history is good.
Why would I need a secured bank loan?
Secured bank loans tend to be for larger amounts of money, borrowed over a longer amount of time than an unsecured loan, and are usually offered with cheaper interest rates.
Typical uses of a secured homeowner loan are for the building of an extension, a conservatory, or for a loft conversion. Other people may use the loans to pay off expensive credit card debts, or to pay for a once in a lifetime trip.
Banks are more likely to grant a loan if they know it will increase the value of your home, like the building of a conservatory, or an extension.