Secured loans: 5 things to check before you borrow in 2027

Taking out a secured loan can be a way to borrow a larger amount of money, whether you’re planning home improvements, paying for a big expense or looking to combine existing debts.

But because the loan is secured against your home, it’s important to know exactly what you’re signing up for.

Even a small difference in the interest rate or an extra fee you hadn’t spotted could end up costing you thousands of pounds over the life of the loan.

There’s also a bigger risk to consider. If you can’t keep up with your repayments, you could lose your home.

In the UK, residential secured loans are regulated by the Financial Conduct Authority (FCA), with rules in place to help protect borrowers.

In this guide, we’ll look at five things worth checking before taking out a secured loan, including interest rates, fees and repayments, so you can make a decision that works for your finances.

1. The interest rate doesn’t tell the full story

When you’re comparing secured loans, you’ll probably look at the interest rate first.

But a lower interest rate doesn’t always mean you’re getting the cheapest deal.

Some lenders charge extra fees, which can make a big difference to how much you end up paying back.

One way to compare loans is to look at the Annual Percentage Rate of Charge (APRC). This includes the interest rate and certain fees, giving you a better idea of the overall cost.

However, APRC isn’t always a perfect comparison, especially if the interest rate could change in the future.

Before choosing a loan, make sure you’ve checked all the fees and worked out how much you’ll repay in total.

What fees should you look out for?

Some lenders charge an arrangement fee for setting up your loan.

These fees vary, but you could be charged anywhere from £995 to £3,000, depending on the lender and the deal. Some charge a percentage of the amount you’re borrowing instead, while others may not charge an arrangement fee at all.

You might be able to add the fee to your loan rather than paying it upfront.

This can help if you don’t have the money available, but it will cost you more because you’ll pay interest on the fee too.

For example, say you borrow £30,000 over 15 years at a fixed interest rate of 7%.

If you add a £2,000 arrangement fee to your loan, you’ll pay around £1,200 in extra interest over the 15 years.

That’s £1,200 you could avoid paying if you covered the fee upfront, although you should only do this if you can afford to.

There are a few other costs worth checking.

If you use a mortgage broker to help find a loan, they might charge a fee for their services. Some brokers don’t charge borrowers directly, so it’s worth comparing your options.

You might also need to pay for a property valuation. Some lenders offer these for free, while others charge a fee. More detailed valuations, particularly for expensive properties, can cost considerably more.

Check everything before you sign

Depending on the loan, you might also have legal fees to pay.

For example, a lender may need to register a second charge against your property with HM Land Registry. This means they have a legal claim against your home alongside your existing mortgage lender.

Before agreeing to a regulated secured loan, you’ll normally receive a personalised document explaining the terms.

This might be called a European Standardised Information Sheet (ESIS) or a Key Facts document.

It will explain the main details of your loan, including how much you’re borrowing, the interest rate, monthly repayments and any fees you’ll need to pay.

It’s worth taking the time to read through everything rather than just looking at the monthly payment.

And if something doesn’t make sense, ask the lender or broker to explain it before you sign.

You can also get free, impartial guidance from MoneyHelper to help you decide whether borrowing against your home is right for you.

The main thing is to look at the total cost of the loan, not just the interest rate.

Even a small difference in fees or interest could cost you hundreds or thousands of pounds over the years.

2. How your loan-to-value affects the cost of borrowing

The amount you already owe on your mortgage compared to the value of your home can affect how much you’ll pay for a secured loan.

Lenders look at something called your Combined Loan to Value (CLTV).

This tells them how much of your property’s value is covered by borrowing, including the new loan you’re applying for.

Generally, the lower your CLTV, the better your chances of getting a cheaper interest rate.

This is because lenders see you as less of a risk when you have more equity in your home.

How to work out your CLTV

Working out your CLTV is fairly straightforward.

First, add together what you still owe on your mortgage and how much you want to borrow with a secured loan.

Then divide that amount by the value of your property and multiply by 100.

For example, let’s say:

• Your home is worth £300,000.
• You have £150,000 left on your mortgage.
• You want to borrow another £30,000 with a secured loan.

That means you’ll have £180,000 of borrowing secured against a property worth £300,000.

Divide £180,000 by £300,000 and multiply by 100, and your CLTV is 60%.

In this example, you still have 40% equity in your home, which could help you qualify for a better interest rate.

Why your CLTV matters

Lenders use your CLTV to help decide how much they’re willing to lend you and what interest rate to charge.

If your CLTV is relatively low, you’ll generally have more options available and may be offered a lower rate.

But as your CLTV gets higher, particularly when it reaches around 80% to 85%, you could find that interest rates increase and fewer lenders are willing to offer you a loan.

These aren’t fixed limits across every lender, though. Each has its own rules, so the rates and borrowing limits you’re offered can vary.

The lender will also need to know how much your property is worth. Some will use an online valuation, while others might want a physical valuation before agreeing to lend.

If you’re unsure how much you could borrow, you can calculate the secured loan using the calculator from KIS Finance.

This can give you an idea of what’s possible before making an application.

It’s worth checking your CLTV before applying, as knowing how much equity you have in your home can help you understand what deals might be available.

Just because you have enough equity to borrow more doesn’t automatically mean it’s a good idea. You’ll still need to make sure the repayments are affordable.

3. Fixed vs variable rates: which is better for a secured loan?

When taking out a secured loan, you may have a choice between a fixed or variable interest rate.

The type you choose can make a big difference to your monthly repayments, particularly if interest rates change in the future.

With a fixed rate, you know how much you’ll be paying each month during the fixed period. With a variable rate, your payments could go up or down depending on what happens to interest rates.

Both have their advantages, so it’s worth thinking about which would work best for your household budget.

How fixed and variable rates work

A fixed rate secured loan means your interest rate stays the same for an agreed period, which could be two, three or five years, depending on the lender.

This makes budgeting easier because you’ll know exactly how much you need to put aside for your repayments each month.

Even if the Bank of England increases interest rates, your payments won’t change during the fixed period.

However, if interest rates fall, you won’t automatically benefit from lower payments.

You might be able to switch deals, but there could be charges for doing so.

Variable rate loans work differently.

The interest rate can change during your loan, which means your monthly repayments could increase or decrease.

Some variable rates follow the Bank of England base rate, while others are based on the lender’s Standard Variable Rate (SVR).

Lenders can change their SVR, so your repayments might go up even if the Bank of England hasn’t increased its base rate.

Secured loan terms can range from around three to 30 years, depending on the lender, so it’s important to think about how changes in interest rates could affect you over time.

What happens if interest rates increase?

If you’ve got a variable rate secured loan, an increase in interest rates could mean paying more each month.

For households already trying to manage rising bills, this could put extra pressure on their finances.

Depending on how your loan works, higher interest rates could also mean paying more interest overall or taking longer to clear what you owe.

If you’re worried about your repayments increasing, it might be worth looking into switching to a fixed rate, although you’ll need to check whether any fees would make this worthwhile.

You could also consider making extra payments towards your loan if you have some spare money available.

Paying off more of what you owe can help reduce the amount of interest you’re charged over time.

Just make sure you check whether your lender charges any fees for making extra payments before going ahead.

4. Can you overpay a secured loan without paying a fee?

If you can afford to pay a little extra towards your secured loan each month, you could save money on interest and clear your debt sooner.

However, not all lenders let you make unlimited extra payments without charging a fee.

Some allow you to overpay by a certain amount each year without a penalty.

For example, some mortgages let you overpay by up to 10% a year without being charged, although the rules for secured loans can be different.

It’s important to check the terms of your own loan before paying anything extra.

Watch out for early repayment charges

Some secured loans come with Early Repayment Charges (ERCs).

These are fees you might have to pay if you clear your loan early or make overpayments above the amount your lender allows.

They’re particularly worth checking if you’ve chosen a fixed rate deal.

Some lenders reduce their early repayment charges each year.

For example, a five-year fixed rate deal might charge:

• 5% if you repay during the first year.
• 4% during the second year.
• 3% during the third year.
• 2% during the fourth year.
• 1% during the fifth year.

This is just an example, and charges vary between lenders and loans.

Depending on how much you still owe, these fees could add up to hundreds or even thousands of pounds.

Before making a large overpayment or clearing your loan completely, check whether any charges would apply.

You don’t want to find that the fees wipe out the money you were hoping to save.

Ask your lender for a settlement figure

If you’re thinking about paying off your secured loan early, ask your lender for a settlement figure.

This tells you how much you’d need to pay to clear the loan, including any outstanding interest and charges, based on the settlement date.

The quote will usually have an expiry date, so make sure you check how long it’s valid for.

It’s also worth asking what happens if you make regular overpayments.

Some lenders will use the extra money to shorten your loan term, while others might reduce your monthly repayments instead.

If your aim is to save as much interest as possible, reducing the length of your loan can often make a bigger difference, provided you can afford to keep up the payments.

Before making any changes, check the terms with your lender and work out how much you’d actually save.

Even small overpayments can make a difference over time, but you should make sure you’ve still got enough money set aside for your everyday bills and unexpected expenses.

5. Think carefully before borrowing against your home

If you’ve built up equity in your home, you might be thinking about using some of it to borrow money.

But before taking out a secured loan, it’s worth considering what you’re going to use the money for and whether it’s really worth borrowing against your property.

For example, using a secured loan to pay for home improvements could make sense if the work adds value to your property.

However, borrowing money for everyday spending, holidays or things that won’t last could leave you paying off debt long after the money has been spent.

Whatever you decide, make sure you can comfortably afford the repayments and understand the risks.

Using a secured loan for home improvements

Some home improvements can increase the value of your property, which could help protect the equity you’ve built up.

Projects such as loft conversions, extensions and energy efficiency improvements may add value, particularly if they make your home more practical or cheaper to run.

However, there’s no guarantee you’ll get back everything you spend.

For example, spending £30,000 on an extension doesn’t automatically mean your home will be worth £30,000 more.

It’s worth researching how much similar properties sell for in your area and getting a few quotes before committing to any expensive work.

You should also consider whether you could save up for the improvements instead of borrowing, particularly if they’re not urgent.

And if you’re deciding between renovating and moving somewhere else, our guide to whether it’s cheaper to move or improve can help you compare the costs.

Make sure you can afford the repayments

When you take out a secured loan, you’ll normally make monthly repayments over an agreed number of years.

With a standard repayment loan, each payment covers some of the interest and pays off part of what you’ve borrowed.

This means the amount you owe gradually gets smaller, provided you keep up with your payments.

Some secured loans can run for anything from three to 30 years, depending on the lender and the product.

Choosing a longer repayment period can make your monthly payments more affordable, but you’ll usually end up paying more interest overall.

It’s also worth being careful if you’re thinking about using a secured loan to pay off credit cards or other debts.

Combining several debts into one monthly payment might make things easier to manage, and could reduce what you pay each month.

However, if you’re spreading the repayments over a much longer period, you could end up paying more in total.

More importantly, you’d be turning debts that aren’t secured against your home into borrowing that is.

This means your home could be at risk if you can’t keep up with the repayments.

Taking out a secured loan can also affect your credit record. Credit reference agencies such as Experian, Equifax and TransUnion may record your borrowing and payment history.

Before borrowing, it’s worth going through your household budget properly. Look at what comes in, what goes out and how much you have left after paying for the essentials.

What happens if you struggle to repay?

Before agreeing to a secured loan, lenders will check whether you can afford the repayments.

This usually involves looking at your income, regular spending, existing debts and the value of your property.

You might be asked to provide payslips, tax returns or other documents to show how much you earn.

But even if you can comfortably afford the loan today, your circumstances could change.

You could lose your job, have an unexpected expense or find that your household bills increase.

If you start struggling with repayments, contact your lender as soon as possible.

They may be able to offer support or discuss different ways to manage what you owe.

Missing payments could lead to extra charges, damage your credit record and increase the amount you owe.

If you continue to miss repayments and can’t reach an agreement, the lender could eventually take legal action to repossess your home.

Repossession should be a last resort, and lenders must follow rules about how they deal with customers who fall behind.

If your property is sold following repossession, your main mortgage lender would normally be paid first, followed by the second charge lender. If the sale doesn’t cover everything you owe, you could still be responsible for the remaining debt.

The important thing is not to ignore the problem. Getting help early gives you more options and could prevent things from getting worse.

If you’re already finding things difficult, our guide on what to do if you can’t pay your bills explains what help is available and where to start.

Frequently asked questions

What is a secured loan and how is it different from a personal loan?

A secured loan is money you borrow using your home or another asset as security.

Because the lender has something to fall back on if you don’t repay, you may be able to borrow more than you would with a standard personal loan.

Some specialist secured loans allow borrowing of £1 million or more, depending on your circumstances and the lender.

Repayment terms can also be longer, sometimes up to 30 years.

A standard unsecured personal loan doesn’t use your home as security, although missing repayments can still have serious financial consequences.

Can I get a secured loan with a bad credit score?

Yes, it’s possible to get a secured loan if you’ve had credit problems in the past.

Some specialist lenders consider applications from people with missed payments, defaults or other credit issues.

However, you’ll still need to show that you can afford the repayments.

You might also be charged a higher interest rate, which could make borrowing more expensive.

Having equity in your home doesn’t guarantee you’ll be accepted.

How do I work out my Combined Loan to Value (CLTV)?

Your Combined Loan to Value (CLTV) shows how much you owe against your home compared to what it’s worth.

To work it out, add your outstanding mortgage balance to the amount you want to borrow.

Then divide that figure by your property’s value and multiply by 100.

For example, if your home is worth £300,000 and your mortgage and secured loan add up to £180,000, your CLTV would be 60%.

Generally, having a lower CLTV could help you qualify for better interest rates.

Will I be charged for paying off my secured loan early?

You might be, depending on the terms of your loan.

Some lenders charge Early Repayment Charges (ERCs) if you pay off your loan before the agreed date, particularly during a fixed rate period.

The amount varies between lenders, so it’s worth checking your agreement.

If you’re planning to clear your loan early, ask your lender for a settlement figure. This will show how much you need to pay, including any interest and charges.

You can then work out whether paying it off early will actually save you money.

What happens if I can’t keep up with my secured loan repayments?

If you miss payments on a secured loan, your lender will usually contact you to discuss what you owe and how you can get back on track.

Missing repayments could affect your credit record and lead to additional charges.

If you continue to fall behind, the lender could eventually apply to the courts to repossess your property.

If your home is sold, the money will normally be used to repay your main mortgage first, followed by the secured loan.

If you’re worried about making repayments, speak to your lender straight away rather than waiting until you’ve missed several payments.

You can also get free debt advice from organisations such as StepChange, National Debtline and Citizens Advice.

Before you decide

Taking out a secured loan is a big financial decision, so it’s worth spending some time comparing your options.

Check the interest rate, find out about any extra fees and work out exactly how much you’ll repay over the full term.

It’s also worth looking at alternatives, such as an unsecured personal loan, borrowing more from your existing mortgage lender or saving up if the expense can wait.

And most importantly, make sure the repayments will still be manageable if your circumstances change.

Borrowing against your home shouldn’t be something you rush into. Taking the time to get the figures right now could save you a lot of money and worry further down the line.