Fixed rate secured loans give you certainty that your monthly repayments will remain the same throughout the fixed term. This gives you certainty that your outgoings will not go up should interest rates increase.
In this guide, we break down what a secured loan is, how fixed rates work and the advantages/disadvantages of fixed interest rates.
What we cover in this article:
- What is a secured loan?
- Who can get a fixed rate secured loan?
- What are the advantages of fixing your interest rate?
- What are the disadvantages of fixing your interest rate?
- What are the key considerations before taking a fixed rate secured loan?
- What interest rates can I expect to pay on a fixed secured loan?
- Will I qualify for a fixed rate secured loan?
- How can I find the best secured loan deal?
What is a secured loan?
A secured loan is a sum of money borrowed from a lender, with an asset used as collateral to ensure you keep up the payments. You can use any asset of sufficient value for a secured loan, but property is the most popular choice.
Most secured loan lenders will let you borrow up to 90% of an asset’s value, with some offering up to 95% loan to value (LTV). So, if you wish to take out a secured loan against your home, you could borrow up to 95% of the property value, minus the existing mortgage.
There is an obvious risk to taking out a secured loan. If you fail to keep up with your repayments, this asset may be repossessed, and your credit rating significantly impacted.
Use the ABC Finance secured loan calculator to determine whether you can realistically afford to take out a secured loan and keep up with repayments. Remember that you will not just be paying back the borrowed amount – interest will also be applied.
Interest rates on secured loans are usually lower than on an unsecured loan, especially if you have a low credit score. It’s advisable to seek a fixed interest rate to ensure you always know how much you will be paying. These products are known as bad credit secured loans.
Who can get a fixed rate secured loan?
Anybody can apply for a fixed rate secured loan as long as they have an asset to secure the borrowing against. Consult with a broker to find the best deal possible – especially if you are keen to secure the best possible deal. Interest rates and fees can vary a great deal depending on the secured loan lender used.
What are the advantages of fixing your interest rate?
The biggest advantage of fixing your interest rate is the increased ability to budget. By agreeing to a fixed interest rate that will not vary through the repayment term, regardless of Bank of England base rates or standard variable rate changes, you always know exactly what you need to repay each month.
This is especially welcome if you are offered a low interest rate. If you have a clean credit score and find the right lender, you may be offered a very attractive interest rate on a loan. Knowing that you will maintain this low interest rate, regardless of whether your circumstances change, can offer real peace of mind.
What are the disadvantages of fixing your interest rate?
While there are undeniably several benefits to fixing your interest rates, there are also a handful of potential drawbacks to consider. These include:
- You will sometimes be paying below the national average – but, equally, you may pay more than you would if you took out a variable rate loan when the base rate falls.
- If your circumstances improve, you may find that you’re paying over the odds.
- If you want to end your agreement early and pay off your loan before the end of the term, your lender will charge an early exit fee (known as an early repayment charge). This will be a percentage of the remaining balance, so not such a concern if you are nearing the end of the repayment term, but potentially expensive if you are less than halfway through.
Think about these restrictions before committing to a fixed interest rate loan.
What are the key considerations before taking a fixed rate secured loan?
The key considerations before taking out a secured loan are:
- Do you fully understand how much the loan will cost you in total, including interest and fees?
- Are you sure you will be able to keep up with the repayments? Do you have a contingency plan if your income changes? Remember, you are potentially putting your home at risk if you fail to keep up repayments.
- A fixed interest rate will protect you from sharp spikes in baseline interest rates but also means you could pay more than the average if the Bank of England drops interest rates. Are you OK with this?
- If you come into money and find yourself in a position to repay the loan during the fixed rate period, are you OK with the fact that you’ll be charged an early exit fee?
- Have you checked other options and confirmed that a fixed rate secured loan is the best solution for your borrowing needs? Are you sure that an unsecured loan, or a variable interest rate, would not suit your needs more?
If you answered yes to all of these questions, contact ABC Finance. Our experienced team will find you the perfect secured loan offer.
What interest rates can I expect to pay on a fixed secured loan?
Interest rates are decided by your lender, based on various factors. Some of these are external, such as the Bank of England’s base interest rate. Others will be unique to your finances, like your personal credit score.
You can still apply for a fixed rate secured loan if you have bad credit, but you are unlikely to be offered the greatest interest rate as you are still considered a high-risk borrower.
Fixed interest rates on secured loans can start as low as 5% and rise as high as 20%. Any interest rate below 10% should be considered a good deal at the time of writing. As discussed, you may need to pay a higher interest rate if you have a substandard credit history.
When choosing the ideal fixed interest rate, do not just look at the percentage. Lower is better – but you should also consider the length of the loan, as this will influence how much you will need to pay overall and the affordability of your monthly repayments.
Let’s imagine that you apply to borrow £35,000. This would break down as follows.
|Interest Rate||Loan Term||Monthly Repayment||Total Repayable||Cost of Loan|
As you’ll see, repaying a loan over five years at a 9% interest rate will work out considerably cheaper than repaying the same sum over 10 years at 7% or 15 years at 5%. However, you’ll also face much higher monthly repayments. All of this must be factored into your decision when agreeing to a secured loan and fixed interest rate.
What are the set-up costs?
As mentioned while we discussed the drawbacks of taking out a fixed rate secured loan, some expenses will be accrued in setting up the loan. These expenses can be paid up-front, but most borrowers prefer to add the costs to the total sum repayable.
Your lender will charge for any administrative costs, such as a valuation of your asset, and will apply a set-up fee to the total repayable sum. This will usually be a percentage of the total loan amount, so the more you borrow, the higher this will be.
You will also need to pay a secured loan broker for any services they perform in finding you the best deal. Try not to baulk at this idea – a financial professional will often find you a much better interest rate than would be offered to a member of the public, so this fee will more than pay for itself over time.
Like lenders, most financial services companies or individuals base their fees on a percentage of the sum borrowed. ABC Finance, however, works to a hugely competitive flat rate of £1,495, regardless of your loan amount. This is often a substantial potential saving.
Are secured loan rates lower than unsecured loan rates?
Yes, secured loans are in offered at lower interest rates than unsecured loans. This is because there is less risk to the lender. By securing your loan against a property or other asset of value, the lender can recoup their investment if you fail to keep up with the repayments. To find out more, read our guide to secured vs unsecured loans.
Are variable rate loans better?
“Better” is subjective, but some borrowers may prefer a variable interest rate to a fixed alternative.
A variable interest rate will be periodically reviewed and adjusted according to Bank of England base rate.
For example, if you take out a 10-year loan at an interest rate of 8%, this may fall to 6.5% after a year – but it could rise again to 8.5% a year after that. There is no way to predict how baseline interest rates will behave.
Will I qualify for a fixed rate secured loan?
If you have an asset that a loan can be secured against, and your credit history is reasonable, you will likely qualify for a secured loan.
How can I find the best secured loan deal?
Anybody looking to secure the best deal on a secured loan, or any other kind of significant borrowing, should always seek the advice and expertise of a good broker.
Lenders open up offers to industry professionals that are not accessible to the general public, so a broker can save you thousands of pounds in interest over the course of a loan. Enquire now to learn how we can find you the perfect loan for your needs.