How does putting up security change the price?

2 min read

Lower rateSecurity cuts the margin

Higher stakeAsset/guarantee at risk

Charge or guaranteeTwo common forms

Weigh the tradePrice vs exposure

Why security reduces the rate

Interest is a price for risk. When a lender can recover its money by taking a charged asset or calling a personal guarantee, its potential loss on a default falls — and so does the margin it needs to charge. That is why secured asset finance and mortgages are cheaper than unsecured term loans, and why a guarantee can shave points off an otherwise costly quote.

What you are putting at risk

The lower rate comes at a cost that is not on the rate card. A fixed or floating charge means the lender can take the charged asset if the company defaults. A personal guarantee means your own assets — potentially your home, depending on the guarantee's terms — can be pursued for the company's debt. This is a serious commitment that survives the company's limited liability. See no-personal-guarantee options if you want to avoid it.

Weighing price against exposure

The decision is a genuine trade-off, not a free saving. For an established, cash-generative company with a clear repayment plan, the lower secured rate may be well worth it. For a newer or more volatile business, the certainty of not risking a director's home may outweigh a percentage point or two. There is no universally right answer — only the one that fits your risk tolerance and your accounts.

Compare a secured and unsecured quote on total repayable using the true cost calculator, then apply.

Frequently asked questions

Does an unsecured loan always cost more?

Usually, yes — the lender is taking more risk, so the rate is higher to compensate. The gap varies with your accounts: a very strong company may be offered an unsecured rate close to a secured one, while a weaker profile widens the difference. Always compare both on total repayable rather than assuming secured is automatically the better deal for you.

Can I remove security once the loan is part-repaid?

Not usually mid-term without refinancing. Security is set for the life of the agreement. If your accounts have strengthened materially, you may be able to refinance onto a new unsecured or less-secured facility — but that depends on the new deal being better overall after any charges on the old one. See our refinancing answers.