If you need to borrow money, a secured loan could be the solution to your financial problems. But what are secured loans? Are they the right option for you? And how do you go about getting one?
Here’s everything you need to know about secured loans.
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What are secured loans?
Secured loans are loans offered from a lender to a loan recipient using property, or another valuable asset, as security or collateral.
Most property put up as collateral is usually a home, so secured loans are sometimes referred to as second mortgages.
Other common names are second charge loans, homeowner loans, or further charge loans. If you hear these terms used interchangeably, don’t worry, they all refer to the same thing.
The difference between a secured and unsecured loan
Regardless of what it’s secured by, secured loans are loans guaranteed by another means to support the value of the loan.
Unsecured loans on the other hand, are sometimes called “good faith” loans. That’s because they’re usually given based on that premise; good faith.
For example, in an unsecured loan application, a lender looks for someone who has good credit, high wages and excellent credit history making them appear more likely to repay their debts.
While most secured loans share many similarities with their less secure counterparts, the main difference between the two is the collateral required.
Usually, collateral offered needs to be of a value close to that of your loan amount. But that’s not the case for all secured loans, some loans will require collateral with a value higher than your loan amount.
How do secured loans work?
Secured loans follow the same application structure as you would have for any other loan:
- You apply for the loan.
- When/if you’re approved, terms will be set for the loan specifics.
- Specifics often include amount, collateral requirements, monthly repayments, minimum payment, interest rate and default repercussions.
- A monthly repayment minimum will be set. The monthly repayments will include interest. Your interest rate can be a set percentage or a variable rate, depending on the size of the loan you’re taking out.
Collateral for secured loans
When it comes to giving collateral for a secured loan, it’s important to be aware of what that means in the fine print.
In a secured loan, the collateral offered will be used as “repayment” if the secured loan is ever unpaid in the long-term.
Don’t panic – this doesn’t mean if you’re a day late on your payment you’re going to lose your house. Often there are clauses for a payment being a little tardy. For example, a late fee might be added on. Some loans incur interest on any past due amounts.
When it comes to the property put up as collateral, action on that is usually taken if you’ve fallen behind payment on the loan, or you’ve significantly defaulted.
Without repayment, your property can be repossessed to help the lender recover the cost of the funds you borrowed. If a repossession occurs, the property will be sold and the money from the sale will go to the lender to pay off your debts.
To be on the safe side and avoid any potential nasty repercussions, keep up with your due dates or even repay the loan early.
What should I consider before applying for a secured loan?
Secured loans shouldn’t be taken out lightly. There are several things you should consider before you submit an application.
- First things first, if you don’t have property to use as collateral, a secured loan isn’t for you. Without a means of securing the loan, there’s no reason to apply for one – it’s best to seek alternative sources of funds.
- Most approvals for secured loans require an existing mortgage. Consider the amount of the loan, your desired repayment terms and determine beforehand if your realistic repayment schedule is realistic.
- Thoroughly assess your finances beforehand to determine what monthly repayment you can comfortably afford. Adding in a loan repayment to your monthly budget is only a good idea if you can afford to pay it AND manage all your other debts and expenses.
- Determining why you want the loan is also essential. Do you really need to borrow such a large sum of money? If you don’t need to borrow so much, it can mean you might get more favourable terms.
- If you’re looking for a secured loan to renovate a rental home, you can take out a larger secured loan if it’s projected that the renovations will increase the monthly profit you make from the home.
- What does your credit score and history look like? Being aware of your credit score can give you an idea of the range you could borrow within. If you have spotless credit, you’re likely to be able to borrow more money because you’re less of a risk.
- That isn’t the case for most people, so it’s important to keep an eye on your credit score. Late payments, defaults and judgements will show on your credit score, even if they’re not from this year. Having any of these—especially in excess—can cause lenders to turn you down or dish out an unfavorable interest rate.
- When searching for a secured loan, ask your broker to provide each lender’s standard variable rate so you have an idea of interest rates at the end of your terms.
Is a secured loan right for me?
A secured loan may be right for you if:
- You’re worried about approval chances on an unsecured loan
- You have bad credit, but have a valuable property to offer as collateral
- You’re interested in borrowing a larger sum of money
- You’re looking to rebuild poor credit history showing large value repayment
- You’re in the process of making home improvements
Alternatives to try before taking out a secured loan
Even without perfect credit or a large borrowing amount, there are still alternative options to secured loans.
A credit card might not only be more feasible than a secured loan, it might be preferable. Depending on the amount you’d like to borrow and what you’d like to do financially, a loan might not make the most sense.
There are credit cards available to many demographics, including people with poor credit and people looking to get high credit limits. Many banks have both secured and unsecured credit card options. Some also come with appealing interest free periods.
It’s possible you may be able to get a loan without putting up any collateral. If the amount you’d like to borrow is low or you have acceptable credit, it might be worth applying for an unsecured loan.
Most lending sites allow for pre-approvals to be carried out that can tell you ahead of time if it’ll be possible for them to approve your application or not.
How much can I borrow with a secured loan?
This answer is best decided by the type of loan you’re after, your income, your credit history, your existing debts and the lenders loan to value ratio.
Assessing your loan to value ratio will help you determine how much you can borrow from your loan provider. Ultimately it’s up to them, but having an idea will prevent you from over asking, which could cause immediate denial.
In terms of what a lender could approve you for, unsecured loans tend to go up to £25,000. If you need to borrow more than this – up to £100,000, then you’ll likely be looking at taking out a secured loan.
Factors like a great credit report, a high value home, or even just a well-connected broker can sometimes help you access funds that you might not otherwise reach.
If you’re attempting to get a secured loan with bad credit, it’s a good idea to prioritize lenders that work with lower credit scores.
Can I pay off a secured loan early?
In rare cases your agreement may prevent you from early repayment and strictly lock you in to your original payment time frame or within a few months of it. But, for the majority of secured loans, paying them off early is okay.
Saying that, should you decide to pay your secured loan early, it’s possible you’ll need to pay early repayment fees.
These fees can be the same as the interest the loan would accrue in any given number of months. The specific amount would need to be determined by the lender when discussing early repayment. Even with these fees, it’s possible that you would still be saving money by repaying the loan early.
How do you apply for a secured loan?
If you’re applying for a loan where the amount is congruent with the value of your property, you’ll need to start by working out exactly what that amount is. Next, consider what you can afford to repay. Once you know, you can decide how much to request from your lender.
When all your ducks are in a row and you know just how much you need and what your home’s value can support, it’s time to formally apply.
The internet has made applying for loans of all kinds especially easy and secured loans are no exception. Apply online for a secured loan with a loan broker or directly with a lender.
At Believe Loans we help match you with a lender that best suits your financial needs and is likely to approve your borrowing request. Working closely with a lender that’s well versed in this financial arena can help you get approved quicker and with more favourable terms.
The loan application process is relatively straightforward, but be prepared to submit forms with personal information, home information, previous mortgage information and current income information.
How can I find a secured loan?
While the internet has made researching financials easy, it has also encouraged the rise of predatory .
Be careful where you look for (and find) your secured loan.
For most people, using online brokerage sites like Believe Loans is a quick and easy solution. Loan brokers will chat with you about your needs, compare secured loans, requirements and everything in between to pair you with options.
The loan brokers focus on pairing you with lenders they know, it isn’t a shot in the dark with a random lender that may or may not run away with your personal information or rights to your collateral.
Even better, your likelihood of approval is increased because of the pre-screening and pairing that loan brokers do. Do bear in mind though that just because you do use a broker, doesn’t ensure approval nor guarantee a match with the most viable lenders.
Let Believe Loans help you get a secured loan
If you’re in search of a secured loan, let Believe Loans assist you. As a credit broker, not a lender, we search a panel of appropriate leading lenders to find you the best loan to meet your needs.
We have access to hundreds of products, with lots of different options, to get you the secured loan that will work for you.
Bad credit score? Not to worry, CCJs or defaults? We might still be able to help. Our advisors are on hand to help you find the most suitable option for you.
Our process is simple and easy – we search multiple highly rated lenders to get you the best deal. An initial match won’t incur any hidden broker fees or charges, nor will it impact your credit score.
Contact us today to request a quote.
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The money lands in your bank
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