A secured loan is money you borrow that is secured against an asset you own – usually your home.
Lots of people look for ways to borrow money for many different purposes such as to carry out home improvements, raise money for a deposit for a new house or consolidate debt to reduce their outgoings perhaps. Here we look at what a secured loan is, how they work and what is involved in securing one.
What is a secured loan?
A secured loan is a loan that you take out which is ‘secured’ against your property i.e. the property is used as collateral. With these loans you can borrow larger sums of money and over a longer term as they can secure the borrowing against an asset. You must be aware that if you do not make the repayments the property could be repossessed.
Why would you take out a secured loan?
Personal loans typically range from £1,000 to £25,000 and over a maximum term of 5 years. However with a secured loan you can borrow higher amounts, depending upon the property value and equity, and you could borrow this money over a longer term, of say 25 years for example, depending upon your age and affordability.
If for example you wanted to carry out some large home improvements such as converting the loft whilst also extending the property, the cost of this may be £50,000 plus. A secured loan could allow you to borrow this large sum of money and spread the monthly payments over a longer term.
Debt consolidation is another area where people may choose to take out a secured loan. Many people have high amounts of borrowing on credit cards at interest rates of 18% plus, so you could potentially reduce your outgoings by consolidating the debt into a secured loan over a suitable term. Please note that there are many pros and cons with using a secured loan to debt consolidate and you need to get advice in this area.
If you are in an initial fixed rate or discounted rate period, you may have an ERC (Early Repayment Charge) to pay therefore a secured loan could be a more cost effective route than a remortgage.
Maybe your current mortgage is with a high street lender and you have recently had some bad credit registered, therefore it may be better to leave the majority of your borrowing a high street lender and just borrow the extra separately as a secured loan.
There are many factors to bear in mind whether a secured loan is right for you.
Who offers secured loans?
Secured loans are offered by high street banks and can be known as further advances. Many secured loan lenders only offer their products through specialist mortgage brokers who need to be registered by the Financial Conduct Authority to give advice and arrange these types of loans.
What documents are needed for a secured loan?
Here is an overview of the documents required and why:
- Valuation Report – As the loan is secured against an asset the lender will want to know that the property is suitable security and worth lending upon. This will require a valuation to be done by an independent surveyor.
- Identity – You will have to provide identity to prove who you are. Documents such as passport, driving license are commonly used.
- Credit Report – Your broker and lender has to see a credit report to understand fully what your current credit commitments are and to get an idea of what your payment history is like. Your credit report will show the last 6 years’ worth of credit payment data.
- Bank Statements – Your last 3 months bank statements will be required so the broker and possibly the lender can review your outgoings to help judge if the new loan is affordable.
- Proof of Income – If you are employed you will typically have to provide your last 3 months’ worth of payslips and your latest P60. If you are self-employed, you will have to provide at least your latest accounts.
The lender always reserves the right to request additional information to complete their underwriting.
How long does a secured loan take to arrange?
Typically it takes between 4 to 6 weeks to arrange a secured loan and as stated above, quite a lot of documentation is needed. The key to a smooth and quick application is working closely with your broker and providing all the information complete and quickly when requested.
What fees are involved with a secured loan?
These are the main fees incurred in a loan application and when payable:
- Valuation Fee – The lender may require a full internal inspection of your property by an independent surveyor or they may be happy to accept an automated valuation report which is done online. These costs can vary quite a bit and if payable are due upfront.
- Lender Arrangement Fee – This can be either a flat fee or a percentage of the loan amount you are borrowing. You can typically pay this separately or add to the loan, but interest maybe charged if you add the fee to the loan.
- Broker Fee – The broker should be clear and upfront with what fees they would charge and when payable.
All associated costs will be detailed on your illustration that you will be provided with.
How to get a secured loan?
You should speak to an FCA authorised broker who can give you advice on secured loans and also on remortgage options. It is important to review all your borrowing options and be fully informed of the pros and cons with each borrowing method before making a decision.
Get in touch with The Money Hub today
We hope that you found this guide to secured loans helpful! Don’t forget, you can still attain secured loans for bad credit, so please get in touch with The Money Hub team today for more help and information. As secured loan and remortgage experts, we are on hand to help with all of your questions. To speak to a member of our helpful team, please get in touch.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.