Borrowing money for home improvements &/or debt consolidation can be expensive and you may want to spread the payments over a long term such as 20/25 years to keep the monthly payments low. Long term loans are ‘Secured loans’ and as the borrowing is secured against an asset (property) the lenders are able to offer more borrowing flexibility and in some cases offer long term loans for bad credit.
Here we explain what long term loans are along with the advantages and disadvantages of borrowing money over a longer term
Why do people take out a long term loans?
People look to borrow money over a long term to lower the monthly payments as they will be less when compared to a short term loan of say 5 years, where the monthly payments for borrowing a significant sum will probably be unaffordable for most people.
Common reasons as to why people consider taking out a long term loan are:
Raise money for home improvements. (Kitchen, Bathroom, Conservatory, Extension, Loft Conversion etc)
Reduce outgoings by consolidating their debts such as loans, store cards and credit cards
Raise money for a deposit to purchase another property
Raise money for a business
When looking to raise money, you should review all the borrowing options you have available such as:
Personal Loan – these are provided mainly by high street lenders and the loan terms can typically be 1 – 5 years
Remortgage – This is replacing your current mortgage with either a new product from your existing lender, or taking out a new mortgage with a new lender and at the same time borrowing the extra funds you need. Terms on remortgages can range from 3 years to 40 years with some lenders.
Further Advance – You may have a good rate with your existing mortgage lender and changing this is not ideal, so you could opt to see if your current mortgage lender will provide you with a further advance. This is an additional mortgage against your property with the same lender. Terms on these tend to be 3 years to 25 years.
Secured Loan – This can also be known as a ‘second mortgage’ and this is secured against a property with a different provider to your main mortgage. Loan terms on these can range from 3 years to 30 years.
When considering borrowing money you should review all your options as laid out above and work with a mortgage broker who can give you advice. When taking out a long term loan, you have to remember that this is a serious financial commitment that could run for a long period of time and in some cases, up to 25 years. So when choosing your loan over a longer time, you need to be sure that it is the most suitable and affordable one for you.
What are the advantages of a long term loan?
A long term loan is a great way to allow you to borrow large sums of money and be able spread out the monthly repayments, giving you more time and that extra flexibility to repay the loan. We consider Long Term Loans to be those that run from 5 years onwards.
What are the disadvantages of a long term loan?
As the loan is over a longer time period you will be paying interest on this debt for the whole term resulting in paying back quite a bit more than you borrowed. On your illustration from your broker, it will state the amount you are borrowing, the APR (annual percentage rate, which is the cost of borrowing the money including interest and fees) and the total repayable over the full loan term. Ensure you read this document
carefully so you are fully aware of all the costs involved.
Is it possible to get a long term loan with bad credit?
There are specialist lenders that provide long term homeowner loans to people that have bad credit registered. We have helped hundreds of clients find the right long term loan for them, regardless of their credit profile. Examples of bad credit that can be accepted by lenders:
Missed payments – This maybe on loans, credit cards, store cards and mobile phone contracts.
Defaults – This is where you have had several missed payments and the lender has registered that your account is now in ‘default’.
County Court Judgements – This is where a lender has taken you to court in an attempt to retrieve from you the money owed to them.
As you had poor credit marks on your credit profile you will be charged a higher rate of interest when compared to high street loans as you will be viewed as a greater risk, however there are lenders that provide long term loans for bad credit and the interest rate you will be charged will depend upon several factors such as when was the bad credit registered, the size of the debt and if it has managed to be resolved now.
Working with a mortgage broker who specialises in providing clients with long term loans for bad credit is beneficial.
Can you get long term loans on different types of properties, such as a Buy to let?
Some lenders are willing to provide long terms loans secured against your home or a buy to let property. Where the loan is secured against a buy to let property this would be deemed as a greater risk and therefore the interest rate charged would be higher. If the buy to let property is a holiday let, HMO or semi commercial there are lenders that are willing to provide long term loans.
It is worth noting also that if the property is of non standard construction again there are lenders willing to offer long term loans.
The loan borrowing possible will depend upon key questions such as – is the borrowing affordable? & how much equity is in the property and the credit profile of the applicant.
What fees are involved with long term loans?
As Long term loans are ‘secured’ against an asset they do have more associated fees when compared to a personal unsecured loan. The associated costs are:
Lender Arrangement Fee – This could be a flat fee or a percentage of the loan amount. You may have the option to add this to the loan, however if the fee is added you will be charged interest on this.
Valuation Fee – The cost of this will depend upon whether an online valuation can be done, if so – this is normally free or if a physically valuation is needed.
Consent Fee – In some cases your current mortgage lender needs to provide ‘consent’ for a secured loan to be registered against your property. With some lenders there is no charge although some may charge £100 for this.
Broker Fee – You broker should advise you of the cost and when payable.
Your illustration will provide you with a full breakdown of the cost and fees involved, so please take the time to read this document carefully.
How to explore your long term loan options with The Money Hub
We specialise in this area and would be happy to help. You can either call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
These are provided by more specialist lenders accessible through mortgage & loan brokers. The interest rates charged will depend upon when the bad credit was registered, what type of debt was involved, how much the bad debt was for and if you have managed to resolve now.
If you are a homeowner and looking to borrow money you should fully investigate all options available such as a personal loan, remortgage, further advance with your current mortgage lender and a secured loan (long term loan).