A secured loan is a particular kind of loan that makes up a significant percentage of all loans taken out in the UK. People are now borrowing larger sums of money and obviously lenders of that money need to be more careful about how they lend it.

The main concern of any lender is that a loan will be repaid and hence they need to make a series of checks into a persons credit history before agreeing to a loan. In terms of security there are basically two types of loan - unsecured loans and secured loans. When agreeing to a secured loan, you make available an existing asset to act as collateral against the loan. In the event that a loan is not repaid then, as a last resort usually, the lender can use the security assigned to the loan to recover their money. In the worst case this could mean they can repossess a property and dispose of it to raise the funds required.

All this doesn't mean that a lender has no recourse with an unsecured loan - they can still pursue defaulters using the normal channels for their money, but they would normally only lend sums of money on an unsecured basis when those amounts can realistically be recovered without resorting to the repossession of a property.

Another important factor with secured loans is that, because there is an additional level of security in place for the lender, they are able to charge lower levels of interest for these loans. With unsecured loans a lender will often charge a higher level of interest to offset the effect of people defaulting on loans and the lender then not being able to recover all of their money. If you are not likely to default on a loan then it seems odd that you are being charged more to make up for those people that do default, but that's what is happening.

Because the additional security required for a secured loan is normally your main residence, then it is obvious that secured loans are only available to homeowners, and in particular homeowners with enough equity in their property to cover the value of the loan. A lender will not consider a property to be a qualifying asset if most of the value of the propery value is still outstanding under an existing mortgage.