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A secured loan is a way to borrow money against an asset you own, such as a car or a house. They are often used by those who require a large or long term loan or are unable to get approval for a personal loan. Those considering a secured loan should know that they come with the risk of losing your assets, which could be life-altering. This article will give you all the facts you need about secured loans, so you can make an informed decision on whether it is the right option for you.
A secured loan, often referred to as a homeowner loans or 2nd charge mortgages, allow you to borrow large sums of money – typically more than £10,000 – using your home as collateral. Therefore, if you don’t keep up with the regular payments, the lender can take possession of your home and sell it to recoup their losses.
The amount you are eligible to borrow, the duration of the loan, and the interest rate you are offered will depend on your circumstances, as well as the amount of ‘free’ equity you have in your home. ‘Free’ equity is the difference between the value on your home and the amount left to pay on your mortgage if you have one. The interest can be variable or fixed depending on the type of loan you choose.
Personal loans and secured loans are completely different forms of borrowing. With a secured loan the debt is linked to your asset (usually the home). A personal loan, also known as an unsecured loan, is not protected by collateral, therefore if you are late with payments or default, your lender cannot automatically take your property, but can go through other methods to reclaim the debt, such as going through the courts.
You don’t need to be a homeowner to be eligible for a personal unsecured loan, but you do need to have a fair credit score. You borrow from a lender or bank and agree to make regular payments until the debt is paid off. As the loan is unsecured, the interest rates tend to be higher than with a secured loan, and you may incur extra charges or fees if you miss payments. This can negatively affect your credit rating, making it more difficult to successfully apply for an unsecured loan in the future.
The two main types of unsecured loans are opening a line of credit, such as credit cards or store cards, and fixed-interest instalment loans such as personal loans, student loans, etc.
Typically, a secured loan is for those that have a poor credit rating or no credit history, which makes them ineligible for a personal loan. The main condition is that you are a mortgage holder or homeowner that has enough equity in their home to act as security for the loan. Also if you are tied in on your current mortgage with your lender and wish to avoid paying early repayment charges to switch lenders as an alternative to a further advance a secured loan may be available to you to borrow additional funds.
If you have bad credit, we can help you to secure a homeowner loan. The bad credit issues we will consider include:
If you would like more information on bad credit secured loans, get in touch with one of our loan experts today.
Although the main requirement for a secured loan is home ownership, there are other eligibility requirements that secured loan providers may expect you to meet. They will vary between lenders, but will typically include:
Loan providers will want to know that you can afford the monthly payments and will need to see evidence of a steady income. The majority of providers will have a minimum salary requirement that must cover your monthly payments and any other outgoings you have. There are some secured loan providers that specialise in lending to the self-employed that can’t show a steady income. You will be required to provide tax returns and bank statements.
Having a good credit score improves your chances of being accepted for a secured loan. Usually, better your credit score, the more you will be eligible to borrow and the better the interest rate you will be offered. However, as previously mentioned, you are not ruled out if you have a bad credit rating, as your home serves as collateral, but you may have to pay higher rates of interest.
With a secured loan, usually the home is used as collateral. If you still have a mortgage on your home, your loan will be known as a second charge mortgage. This means that if you don’t keep up with payments and your home is repossessed, your first mortgage lender has the first priority to take what is outstanding. The second charge lender then has the second chance to claim the debt. If you don’t have a mortgage, your secured loan will usually be referred to as a first charge mortgage.
Secured loan providers will usually require a certain amount of ‘free’ equity in your home. The majority of lenders will have a cap of the total debt secured against your home. Generally speaking, the higher the amount of ‘free’ equity you have in your home, the more you will be able to borrow.
There is typically and upper and lower age limit on secured loans. These will vary between lenders with most lenders accepting applicants between 18 and 21 years old, up to between 70 and 80 years old.
There are a number of reasons why you may be considering a secured loan, as you have the potential to borrow large sums of money. You could use a secure loan for any legal purpose such as the following:
There are a number of benefits of using a secured loan to consolidate your debts, which include:
Take a look at the advantages and the disadvantages of a secured loan, to help you to make a decision if it is the right loan for you.
As a secured loan puts your home at risk, they should not be taken out without knowing everything you can. Before applying, these are things that you should consider:
A secured loan is likely to have a higher interest rate than your mortgage, but there will be other fees and charges to pay, which may include:
A secured loan expert will be able to give you more information on the fees that you can expect to pay and when you will need to pay them.
Your first step in getting a secured loan is to approach your existing mortgage provider and see what they can offer you. Your mortgage provider may be able to offer you special rates and deals if you have a good record making your monthly payments with them. Don’t just accept the deal your current lender offers you, take a look at some comparison sites and see what other deals you may be eligible for. Remember to check the terms and conditions of each interesting loan carefully.
If you have read all the information on secured loans carefully and feel that you want to proceed with a secure loan, get in touch with one of our secured loan experts who can work with you to find the best deal for your needs and circumstances.