If you have been looking for financing, you may have come across the term “125% secured loan” and you may now be wondering what exactly such a loan is. After all, it sounds like a contradiction in terms, doesn’t it? How can something be secured at 125% of its value? Surely you can only secure something at a maximum of 100%.

Well, you are right, in a way. The truth of the matter is that 125% secured loans are actually only partially secured loans. When you enter into such an agreement, you are actually taking out two separate, but linked, loans. One of them is secured at up to 100% of the value of whatever it is you are buying and the remaining portion is actually an unsecured loan.

The way it tends to work is that on the secured portion of the loan, you are charged a lower rate of interest and on the non-secured portion, you are charged a higher rate. What lenders do is to bundle the two loans together in one package, under one arrangement.

So your next question might be, where can I find a 125% secured loan? The truth is, it’s not easy, for a variety of reasons.

For example, in the UK, secured loans and non-secured loans are regulated differently. Whereas the terms of secured portion of the loan would be covered by the Financial Services Authority (FSA), the non-secured portion would not be. For this reason, the administration costs of such loans are quite high and many lenders do not want to get involved with them.

However, if you can find a lender willing to grant you one of these loans (and there are such lenders about, you just have to hunt around for them), then a 125% secured loan could come in very useful if for example you want to buy a house and pay for some major renovation work.

Just be prepared to pay more in total for this type of loan than you would for a standard secured loan. And be prepared for more paperwork too!

More information on this topic can be found at 125securedloans.com.