How does a savings-secured loan work?
Use your own savings as collateral to borrow - without touching the money you've put aside.
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What Is a Savings-Secured Loan?
If you're looking to borrow but want lower interest rates (and usually a softer credit check), a savings-secured loan could be the solution. This type of borrowing lets you use your own savings as collateral - unlocking funds without actually spending your nest egg. Let's take a closer look.
What is a savings-secured loan?
A savings secured loan is a loan backed by your own money - held in a savings account or fixed-term deposit. You're essentially borrowing against yourself. It's often used to build or repair credit or access low-interest funds while keeping your savings.
How it works:
- You deposit money into a savings account, which the lender freezes
- You're given a loan up to the value of your deposit (sometimes slightly less)
- You make monthly repayments with interest (often low)
- Your savings are released once the loan is fully repaid
Key benefits:
- Low interest - your savings reduce the lender's risk
- Credit building - paying on time improves your credit score
- Savings stay put - you're not spending the money, just leveraging it
- Easier approval - ideal for those with poor or limited credit history
When might you get a savings secured loan?
These loans aren't for everyone - but in the right situation, they can be a financial game-changer.
Ideal scenarios:
- You've got savings but don't want to reduce them
- You're working on rebuilding your credit profile
- You're not eligible for unsecured credit options
Watch out for:
- Your savings are locked during the loan term
- Defaulting could mean losing access to your own money
- Not all banks or lenders offer these in the UK
Summing up
A savings secured loan lets you borrow affordably by using your savings as collateral - ideal if you want low rates, easier approval, or a way to build credit without spending your savings. Your funds stay protected and are released once the loan is repaid, making it a smart, low-risk option for the right borrower.
Frequently Asked Questions: Secured Loans
Can I access my savings while repaying the loan?
No - you can't withdraw or use the savings you're using as collateral until the loan is paid off in full. The lender will freeze that portion of your savings, meaning it's not accessible during the term. Once the final payment is made, your savings are fully released back to you, often with any interest they've earned in the meantime.
Will this type of loan affect my credit score?
Yes, and often in a positive way - if you make all your payments on time. Each monthly repayment is reported to credit agencies, helping to build your credit profile. On the flip side, if you miss payments or default, it will negatively impact your score just like any other loan. So while it's a lower-risk way to borrow, your payment habits still matter.
Is there a credit check for a savings-secured loan?
Most savings-secured loans do involve a credit check, but it's usually a soft pull and much less strict than with traditional loans. Since the loan is backed by your own money, approval can be much easier - even if you have poor or no credit. Some credit unions may even skip the credit check entirely, especially for credit-builder options.
How much can I borrow with a savings secured loan?
Typically, you can borrow up to 100% of the amount you have in your savings - sometimes a bit less depending on the lender's policy. For example, if you have £5,000 saved, you might be able to borrow up to £5,000. Some lenders cap the loan at 80–95% of your deposit, just to be safe. The exact figure varies by lender, so it's worth shopping around.
Is a savings secured loan better than a personal loan?
It depends on your situation. If you've got savings and you're struggling to get approved for unsecured credit - or you're looking for lower interest rates - a savings secured loan can be a smart choice. Unlike a personal loan, you're borrowing against yourself, which gives lenders more confidence and you more favourable terms. But a personal loan might work if you don't want to lock away your savings.
Do all UK lenders offer savings secured loans?
No - these types of loans are still relatively uncommon in the UK. They're more popular in the US, but UK borrowers can still find them through specialist lenders, online providers, or credit unions. High street banks are less likely to offer them, so you might need to do some digging or work with a loan broker to find one that suits your needs.
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The details shown are for illustration only and may not include all lenders or products. Actual rates and terms depend on your circumstances and the lender’s assessment. Information was correct at publication but may change at any time.
