Secured loans are financial products issued on the basis of qualifying security being provided by the borrower. Along with meeting other qualification criteria outlined by the lender, the borrower must pledge a qualifying asset of a suitable value as protection, in case they are unable to repay the loan as agreed.
A secured loan agreement will always include a clause wherein the lender has the legal right to claim ownership of the asset used to secure the loan, in the event that the borrower fails to meet their repayment obligations.
While taking out a secured loan puts the borrower’s property at risk in the event of non-payment, secured loans are typically offered with more competitive rates of interest and lower borrowing costs than unsecured personal loans.
What Types of Assets Can Be Used as Security?
For the lender, the priority is safeguarding the funds provided with an asset of sufficient value, which can be quickly sold in the event of non-payment to recoup their losses. All lenders have their own unique rules and criteria where qualifying assets are concerned, though there are certain types of assets that are more commonly accepted than others.
The easier it is to sell any given asset in the event of non-payment, the more attractive it is to the lender. This is why the vast majority of secured loans are issued against commercial and residential properties. When land or buildings are used as security, this is referred to formally as a “lien against real property” and requires the involvement of a solicitor. When any other type of security is used, no solicitor involvement is required.
Most mortgage lenders and secured loan specialists exclusively accept qualifying commercial and residential properties of a certain guaranteed value. However, there are also some independent lenders who are willing to accept other valuable assets, which may include motor vehicles, business equipment, luxury jewellery, fine art and anything else with a high value. There may also be the option of combining multiple assets together to provide the security for a larger loan.
Irrespective of the size of the loan and the nature of the security, the lender will almost always demand an independent valuation to confirm the value of the borrower’s assets.
Lenders typically prefer tangible assets like those detailed above, but it’s also possible to provide security in an intangible form. One example of which could be using shares in the applicant’s company, transferred to the lender in the event of non-payment. However, it can be significantly more difficult to arrange and obtain a secured loan with intangible assets, which are usually considered risky by the lender.
Guarantors
It’s also not uncommon for lenders to request or demand the involvement of a guarantor, in order to issue a secured loan. The inclusion of a guarantor effectively doubles the lender’s ‘insurance’ policy in the event of non-repayment.
Including a guarantor can also increase the likelihood of a secured loan application being accepted, in instances where the value of the applicant’s security may be considered questionable by the lender.
Compare the Market for the Best Deals
At UK Property Finance, we provide independent secured loans brokerage services for businesses and private customers across the UK. If you’re considering a secured loan application, let our team of experts compare the UK market in its entirety for the best possible deals.
Working with a panel of specialist lenders, we provide exclusive access to incredible deals you won’t find on the High Street. Contact UK Property Finance today to book your obligation-free consultation with a member of the team.
