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A secured loan could help you:
To be able to take advantage of this type of loan you need to own your home and have a mortgage on it.
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A secured loan is where you use your property as security or collateral to enable you to get a larger and possibly lower % cost loan than if it were unsecured. The provision of security also means that where you might have been rejected for an unsecured loan due to a bad credit rating you may still be able to obtain a secured loan.
You need to own your home and you need to have a mortgage. Because of this a secured loan is sometimes referred to as a "second charge loan" or a "second charge mortgage".
Secured loans are less well known than their counterparts the Remortgage or the Unsecured loan, but they are becoming much more popular. So, why would you want to consider a secured loan?
Secured loans have a number of advantages over unsecured loans:
But keep in mind that an unsecured loan does not require you to offer your home as security - your property is not (normally) at risk. When using a secured loan you need to have a mortgage already and have free equity1 in your property.
Compared to a remortgage a secured loan offers a number of benefits:
1 this is the value of your home less the remaining mortgage balance. For instance your home may be worth £230,000 and your mortgage balance is £70,000. The free equity in your home is therefore £160,000.
For a secured loan to be a viable option for you certain criteria need to be satisfied:
You don't necessarily need to be employed (i.e. you can be retired or be a pensioner), but you must be able to afford the loan repayments over the life of the loan. You don't need a perfect credit history. You need to understand that your property is at risk of being repossessed if you fail to keep up the loan repayments on a secured loan.
See an example of how these guidelines are used.
As property is involved with these loans there is more underwriting and checking to be done by lenders than with an unsecured loan. So, while you can obtain quotes on line now it is not possible to complete your full application in one sitting. You should assume it could take 3 weeks to obtain a secured loan. If you need a loan urgently then you must look at other options.
Secured lenders only work through brokers like Solution Loans, so to get your quotes you need to complete the simple enquiry form. Within a few minutes our partner will then be in touch with the deals they have found for you. Then compare them to decide which is the best secured loan deal and how you would like to proceed.
Secured loans are so-called "second charge" loans. Only if there is a mortgage on a property (i.e. a "first charge" loan) can you obtain a "second charge" loan. If you have paid off your mortgage completely then it will not be possible for you to get a secured loan. If you need to borrow a significant sum then you will most probably have to remortgage your property.
A lender is likely to offer a range of loan products with a range of LTVs and interest rates. It is typically the case that as the LTV% rises the interest rate on the loan rises too since the lender considers them to be more risky. The LTV is the ratio of maximum lending value to the property value. e.g. if the LTV is 60% and the property value is £190,000 then the maximum lending permitted is £114,000.
So, how do the LTV, mortgage values and a lender's attitude to risk combine?
As an example imagine a lender sets the LTV on a loan to 60%. If your property has a market value of £220,000 then the LTV means that the maximum total lending against the property (first + second charge loans) is £132,000. If your mortgage balance is, say, £80,000 then this is deducted from the £132,000 giving a balance of £52,000 available to use.
But the lender may not offer you the full £52,000. The lender will assess your ability to repay a loan, and also judge your credit risk by looking at your credit history. All lenders have a duty to lend responsibly.
Like many in the UK you might have built up a large unsecured loan debt - things like credit cards, car finance, bank overdrafts, payday loans, etc. All of these forms of unsecured debt tend to have high monthly interest costs and can be a serious drain on your monthly budget. As an aside the average unsecured debt in the UK is £3200, with many owing much, much more.
So, when trying to get to grips with your debt you can look to consolidate it all into a secured loan at a lower rate, and if necessary extend the repayment period to further reduce your monthly payments - but take care not to extend the repayment period longer than necessary as it may increase the overall costs of the debt. Also remember that by doing this you are securing your loan on your property.
As you'll see above a these loans have numerous good points, but you should remember three things if you are thinking of using one:
The thing to do is use our Quick Start tool. It will help you to identify many of the options available to you based on no more than 4 simple questions. Give it a go!
Yes, you can repay your loan early but keep in mind that lenders typically make an early settlement charge of approximately 2 months' interest. Some lenders may also levy an "administration" or "discharge" fee when you settle your loan. It is important that before you enter into any loan contract that you have read the terms and have fully understood what charges could be made. These potential costs could influence your choice of lender.
Normally you would pay off the secured loan with proceeds from the sale of your home - so long as doing so will mean you have a large enough deposity for the purchase of your new property. If this is not the case then in some cases you can transfer the loan to your new property - this depends on the lender you have, so if this flexibility is important to you then choose your lender with care.
If your secured lender won't let you transfer the loan to your next property then you could pay off the secured loan with a new unsecured loan taking into account that there may be fees to be paid for settling your secured loan early.
In simple terms yes - although in reality you would do this by taking out a new personal loan of an amount equal to the balance remaining of your secured loan (plus any exit fees) and using this to settle the secured loan.
Yes, you can do either of the following:
Lenders who offer secured loans recognise that there is a proportion of people who for one reason or another have incurred negative marks on their credit file. Yet, they own their home and have a decent income. While a personal loan provider my reject their application a secured lender has much more flexibility to accept their enquiry. Being able to secure a loan on a property allows the lender to see a lending opportunity where an unsecured lender might only see risk.
Secured loans are no different to any other form of credit when it comes to the recording your financial behaviour. All repayments and missed payments are recorded on your credit files at the UK three main credit reference agencies.
So, if you manage your secured loan properly and ensure that your payments are all on time and paid in full then this good news will gradually replace any bad news on your file and your credit rating will improve.
Missing payments will always be recorded on your credit file so affecting your credit rating. But the key question with a secured loan is whether the lender would repossess your home? Nominally they are legally able to but in reality this would be a last resort just as it would be if you missed a mortgage payment.
The lender would work with you to get your payments back on track. What you should always do, as with any credit you have, is immediately talk to your lender when you realise you are going to have a payment issue. This route is more likely to get you a sympathtic hearing.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT. IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY
* Actual rate will depend on personal circumstances and credit assessments. To find out what rate you can get apply below. The current Representative APRC is 9.1%, including lender and broker fees.
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