If a debt is secured, your creditor has the right to take something that belongs to you if you do not pay the debt. There are strict rules about the steps that need to be taken for a debt to become secured. The rules are different depending on what you are giving as security. For example, the rules for giving a car as security for a debt are not the same as the rules for giving a house as security.

What is secured debt in simple terms?

A debt is secured if either the agreement or the law gives your creditor the right to take something that belongs to you if you do not pay the debt. The most common form of secured lending is a mortgage. When you buy a house with a mortgage, you will legally own the house, but the agreement says that your mortgage lender can take possession of the property if you do not make the agreed payments.

There are ways that other things, such as vehicles or jewellery, can be used as security for a loan. There are strict rules about how these kinds of agreements must be set up though.

Most day-to-day lending is unsecured. Read our article What is unsecured debt to find out more.

What is considered secured debt?

A debt is secured if the agreement gives the creditor the right to take something that belongs to you if you do not pay. In some circumstances, an unsecured debt can become a secured debt after a creditor gets a county court judgment (CCJ) against you. This does not happen automatically; there are further steps that need to be taken after getting a CCJ.

Examples of secured debt

Generally, a creditor will ask for security to be given when a large amount of money is being borrowed. But a creditor may ask for security when lending smaller amounts if they think there is more of a risk that you may not repay the debt. For example, this may be because you have a missed payments on other debts in the past and there are defaults or CCJs recorded on your credit reference files. Read our Credit reference agencies guide to find out more about credit files.

Common types of secured debt

The most common type of secured lending are mortgages and secured loans. Secured loans are sometimes called second mortgages. These debts are secured against a property you own, usually your own home.

If you do not meet the payments on a mortgage or secured loan, the creditor can repossess the property. If the property is your home, they will normally need a court order to do this. Repossessing your home should be a last resort. See our Mortgage arrears guide to find out more.

If a creditor gets a CCJ against you, they may be able to take steps to turn an unsecured debt into a secured debt.

If you own your own home, a creditor with a CCJ can ask the court to make a charging order. A charging order secures the debt against your home as if it were a mortgage. See our Charging orders guide to find out more. In some circumstances, a creditor can ask the court to force the sale of your home. This is rare.

When a creditor gets a CCJ, you can ask the court to let you repay the debt at an affordable rate. If this is agreed and you stick to it, this will stop most further action. If you don’t agree anything or are behind on payments, a creditor could ask the court to send enforcement agents (bailiffs) to collect the debt. For certain types of debt, there may be other ways for the creditor to ask enforcement agents to be used. Read our Understanding bailiffs article to find out more.

A bailiff will try to take control of goods (things you own). They will usually try to make a controlled goods agreement if they are able to do so. This is an agreement that they will not remove and sell the goods as long as you stick to a payment plan. This secures the debt against the goods included in the agreement.

There are rules about the goods that can be included in the agreement and about who can set up the agreement with the bailiff. There may also be steps you can take to stop a bailiff from being able to take control of your goods. If you are dealing with a bailiff, call National Debtline for free professional advice from one of our expert advisers.

Other forms of secured borrowing

The are other forms of secured borrowing. These are less common.

• Bill of sale (sometimes called a log book loan) – a bill of sale secures a debt against goods that you own rather than a house or land. Most commonly, a loan is given with a bill of sale used to secure the debt against a car. See our Bill of sale guide to find out more.

• Pawn agreement – this as an agreement where you allow the creditor to keep hold of goods you own and to sell them if you do not pay debt back as agreed. This type of agreement is usually made using jewellery, antiques or electronic equipment. Call National Debtline for advice if you are struggling with payments on a pawn agreement.

• Personal guarantee – this is different to the other kinds of security covered in the article. This is where someone else, such as a friend or relative, gives a guarantee you will pay the debt back. If you do not pay, the creditor may be able to claim some or all of the debt back from the guarantor (the person who gave the guarantee). Call National Debtline for advice if you are struggling with payments on a guaranteed debt.

How secured debt works

A secured debt is created if:

• you borrow money and give something as security as part of the agreement; or
• a creditor gets a CCJ for an unsecured debt and takes further court action that secures the debt against something you own.

What happens if you do not pay secured debt?

This depends on the type of the security that has been given. There are different rules for each type of security and the creditor may need to get a court order before they can sell the security. If you are struggling to meet payments on a secured debt, or have missed payments already, call to get free advice from the expert advisers at National Debtline.

What are the risks of secured debt?

Secured debt is less risky for lenders as the security gives them another way of them getting their money back if you are unable to pay. Because of this, you may be offered lower interest rates than you would get if you took out unsecured debt. You may still be asked to pay high rates of interest though, especially if your creditor reports show you have missed payments in the past.

If you miss payments on a secured debt, the creditor may be able to take the security and sell it. Because of this, you should always think carefully before agreeing to a secured debt.

Can a secured loan be written off?

A creditor can choose to write off a debt. But it is very unlikely that a creditor will do this with a secured debt, as taking the security you have given will usually allow them to get their money back.

How to deal with secured debt

There are lots of different ways to deal with secured debt. The solutions you can choose will depend on the type of debt you have.

When to get free debt advice

National Debtline has been giving free professional debt advice for over 30 years. Call 0808 808 4000 to get expert guidance to help you deal with your debts.