If you are looking to borrow money to carry out home improvements or you wish to consolidate debt to reduce your outgoings, a secured loan may be an option worth exploring along with other types of borrowing such as a remortgage, personal loan or a further advance with your existing lender. We specialise in this field and would be happy to answer any questions that you may have.
How does a Secured Loan work?
These loans can also be known as secured homeowner loans, home loans or second-charge mortgages and they allow you to borrow money while using your home as “security” (also known as “collateral”). It is important to note that this means that the lender has the loan amount secured against your property and if you are unable to keep up with the payments on this loan the lender could repossess the property.
Who is eligible for a Secured Loan?
You can take out a secured loan on a property that you own, be that your home or a property that you rent out. Your loan adviser will review your circumstances and needs and give you advice on any potential secured loan that is available. It is essential to make sure any secured loan is affordable in the short and long term.
What can a Secured Loan be used for?
A secured loan can be used for many reasons; for example, home improvements, debt consolidation, once-in-a-lifetime holiday, education fees, business investment or a wedding for example. These are just a few of the reasons that people apply for this type of credit.
What are the advantages of Secured Loans?
It is possible to take out larger amounts. It can be difficult to borrow more than £25,000 with a personal loan but secured loans often go up to £100,000 or higher. For example, this may be useful for big home improvement projects.
You can stretch the loan out over a long term, making your monthly payments more affordable. Personal loans usually last for a maximum of five years, making it more difficult to afford the monthly payments on large loan, whereas a secured loan could be over a term of 25 years.
Secured loans are usually easier to get approved for if you have poor credit or no credit history. This is because using your property as collateral lowers the risk for the lender.
The interest rate charged on secured loans can be cheaper in some cases when compared to unsecured loans as the debt is ‘secured’ on an asset.
What are the disadvantages of Secured Loans?
There is significant risk – if you default on your payments, the lender can repossess your home to recover the debt.
Getting a secured loan over a longer term to lower your monthly repayments maybe a benefit, but you are likely to pay more interest overall. This is because interest will be charged monthly – so the more months you have the loan for, the more interest payments you will make.
With secured loans there will be fees to pay for such as lender arrangement fees, broker fees and valuation fees.
Is taking out a Secured Loan for Debt Consolidation a good idea?
This decision is down to many factors and includes your personal financial situation, your ability to borrow and the amount of any debt that you are considering consolidating with a secured loan. It is important of course to work out the cost of any debt versus the amount repayable under a secured loan agreement to see if you will be better or worse off – Getting advice in this area is important. Other potential ways to reduce your outgoings to consider are a Personal Loan, Further Advance with your existing lender or a Debt Management Plan if you are in financial trouble.
What are Secured Loan rates?
Secured loans are available in a variety of ways for example, a fixed rate for an initial period such as a 2 year or a 5 year period and then the rate will move to the lenders variable rate, or there are variable rate options for an initial period or for the whole loan term. An initial fixed rate period gives you stability of payments whereas with variable rates the rate may change and your repayments will be adjusted accordingly.
Ultimately the rate that you will be offered will depend upon your credit profile (i.e. any bad credit you have registered) and how much equity you have within the property. It is also useful to use APRC (annual percentage rate charge) figure to compare secured loans – This is what your borrowing will cost you each year and includes interest as well as any other standard charges, such as arrangement or admin fees.
What documents are needed when applying for a Secured Loan?
The documents that we typically require for a homeowner loan application include:
Last 3 months bank statements – This is to understand your full income and expenditure, so therefore we can ensure that any homeowner loan recommended is affordable.
Last 3 months payslips & latest P60 – If employed or if Self Employed Last 2 years tax calculations and tax overviews or your accounts. This is to confirm your income.
Credit Report – You should obtain a copy of your credit report and thoroughly review this to make sure the data is correct. Experian, Equifax or CheckMyFile are good resources for this.
Proof of Identity – This is a copy of your Passport &/ Or Driving license.
The lender will always have their own documentation which needs to be completed and the lender always reserves the right to request additional information to complete their underwriting process.
How to apply for a Secured Loan
You can either complete the above enquiry form or call the office and speak to an adviser. It is advisable to have a credit report available from Experian, Equifax or CheckMyfile as the adviser will need to fully understand your credit situation.