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Secured Lending
- What Is A Secured Loan?
- Is It Easy To Get A Secured Loan?
- What Is The Difference Between A Secured And An Unsecured Loan?
- What Are The Advantages Of A Secured Loan?
- What Are The Dangers Of Secured Loans?
- What Types Of Secured Loans Are There?
- How Important Is The APR?
- How Long Is The Repayment Period?
- How Do I Borrow A Secured Loan Additional To My Mortgage?
- How Much Can I Borrow?
- What can I use the loan for?
- How Do I Repay?
- Can I Cancel A Secured Loan?
- What happens if I want to move house?
- Should I Take Out Payment Protection?
- What Is A Typical Secured Loan?
- So Is It Ok To Get A Secured Loan?
What Is A Secured Loan?
A secured loan is a loan where you provide the lender with some security against the money they lend you. The security for secured loans is usually your home. A mortgage is the most common example of a secured loan in the UK. In this case the mortgage loan enables you to buy a home but that home then becomes the security against the possibility of failing to meet your mortgage repayments.
Is It Easy To Get A Secured Loan?
Generally, secured loans are much easier to obtain than unsecured loans. This is because the lender has added security in terms of your home which provides protection in the event of failure to repay the debt. This security usually means those often struggling for an unsecured loan - the self-employed, those who have just changed jobs, anyone with bad credit ratings - can take out a secured loan.
What Is The Difference Between A Secured And An Unsecured Loan?
A secured loan means you borrow a sum of money and put up something of value as security - eg your home. An unsecured loan means there is no danger of losing your home if you cannot keep up with the payments but you could be taken to court instead. An unsecured loan will normally cost you more on account of higher interest rates.
What Are The Advantages Of A Secured Loan?
A secured loan is usually cheaper than an unsecured loan.
Because the loan is secured against your home the interest rate should be cheaper than an unsecured loan and you will be able to borrow more.
Lenders are usually eager to offer you a secured loan.
Can be a sensible way to borrow for certain expensive items, such as home improvements.
Secured loans can be a way of cutting your existing monthly payments by stretching your debt over a longer term.
What Are The Dangers Of Secured Loans?
The main danger of a secured loan is not keeping up with your payments and losing your home. If you do not keep up your payments the lender can sell the item used as security - usually your property - leaving you homeless.
In contrast with an unsecured loan if you cannot keep up the payments the lender can take court action but you will normally be given the option of repaying in installments and your home will not be at risk.
Consolidating debt by putting all your debts together and spreading them out over a longer term secured loan can seem a good option but it also means your debt can become a never ending burden.
Secured loans are not always cheap. Some lenders will try and charge you high interest rates more in line with expensive unsecured loans.
Always get as many quotes as you can when seeking a secured loan and work out how much you have to pay back overall.
What Types Of Secured Loans Are There?
Secured homeowner loans are available in varying amounts and for many different purposes. As well as mortgages secured loans can be taken out to purchase any significant expensive item such as a new car. The loan can be secured on the car in much the same way as a mortgage arrangement. Secured loans are often taken out for debt consolidation.
How Important Is The APR?
The APR (Annual Percentage Rate) is only a general guide to how much you repay on your secured loan but is still a good way of comparing the value of loans on offer. You really need to work out how much you actually repay over the fixed period taking into account all costs.
How Long Is The Repayment Period?
The repayment period or term varies. Most mortgages are taken out over 25 years with agreed monthly payments. Compared to property the duration of the loan period is likely to be considerably less for smaller value items such as a car. You may be charged a penalty if you decide to repay your loan earlier than agreed; so you should always check any policy carefully on that issue.
How Do I Borrow A Secured Loan Additional To My Mortgage?
A secured loan is a loan where you provide the lender with some security against the money they loan you. That security is usually your home. In the case of secured loans, the security will be the borrower's property whether it is mortgaged or owned fully. If a loan is secured against your home and you already have a mortgage then this secondary loan is often know as 'second charges'. Loans secured against a property owned outright with no mortgage are known as first charges.
How Much Can I Borrow?
The amount can range from as little as £3,000 to a figure in the hundreds of thousands.
Secured home owner loans over £100,000 are common for mortgages these days.
Some lenders in the UK will now offer up to an astounding 125 per cent of value of your property.
What can I use the loan for?
Secured Loans can be used for a variety of reasons including debt consolidation, purchase of a holiday home abroad or another UK property. Always check with the lender or advisor that the reason you need the loan for is allowed by the lender.
How Do I Repay?
The amount borrowed is usually repaid monthly over an agreed 'term' ranging from anything from a few years to twenty five years. Lenders charge interest on the amount defined as the APR - Annual Percentage Rate. The amount borrowed, the term and the APR depend upon the deposit or equity in your property, your income, credit rating and perceived ability to repay. Always check the small print. There may be early redemption penalties. There may be an arrangement fee. Work out your total costs.
Can I Cancel A Secured Loan?
Under the UK Consumer Credit Act 1974 secured loans up to a value of £25,000 are regulated. When you are approved for a loan you will have to sign a credit agreement so make sure you read and understand the terms of that agreement. Regulated loans under £25,000 means that the lender has to give you seven days as consideration period after the loan is taken out in case you wish to cancel the agreement. Beyond that if you decide to pay up earlier than agreed you will probably be charged for it. Always check this.
What happens if I want to move house?
You could simply settle the outstanding balance of the loan from the proceeds of your sale. Alternatively, you may be able to transfer the loan to your new property. It would be important to discuss with the lender or your advisor your future plans if you feel you might need to move house in the near future so that the secured loan you are applying for from the outset will meet with your future requirements.
Should I Take Out Payment Protection?
You can insure your payments so that you can still make payments if you lose your income due to accident, sickness or unemployment. These means your home will remain secure. Such insurance is often expensive so consider carefully whether you actually need this protection and think about the likely realities of such a predicament. If you decide payment protection insurance or mortgage protection insurance is necessary always check the small print for any exclusions. There are various levels of cover and costs on offer.
What Is A Typical Secured Loan?
Money offer ranging from £3,000 to £250,000.
Your property as security.
No initial costs.
Pay 10% APR.
Repayment period of 25 years.
Option of insurance protection policies to safeguard your home.
So Is It Ok To Get A Secured Loan?
Of course it is as long as you are careful. Just proceed with caution and try to avoid over burdening yourself with debt. Independent advice from an independent advisor is time well spent.
Beware of putting all your unsecured debts into a long-term secured loan. If you have a major secured loan such as your mortgage beware of taking on too much more debt on credit cards, personal loans etc. If you do wish to use the equity in your home to borrow more then a further secured loan from your mortgage lender is probably the best option. It should be a lot cheaper than other secured loans. Remember, secured loans are useful for large amounts and the need for a long repayment period. Shop around. You may find deals where you defer your first payment for several months. Try and consult an independent mortgage advisor or financial advisor if you need extra advice. Also take advice from trusted sources such as colleagues, family and friends.