Secured Loans

 

What exactly is a secured loan?

A secured loan is a loan that is secured against an asset, offering security for the lender. A lender will look at the borrower’s assets – also known as collateral – to determine how financially viable the borrower is on the basis of the ‘collateral’ that they have. A secured loan will be issued by the lender based on the amount of the financial assets the loan can be secured against.

In many cases, including in this instance, a secured loan is secured against a property in your ownership. Secured loans, such as this, can also be called ‘homeowner loans’ or even ‘2nd charge mortgages’. A secured loan enables you to take out financing without the loan impacting upon your existing mortgage, or current first charge mortgage. Secured loans tend to be for larger, rather than smaller amounts, and start from £10,000, secured against the equity within your property.

Secured Loans | Debt Consolidation Loans

Looking for the best Secured Homeowner Loan? You’ve come to the right place.

While there are other assets that may be considered as security for a secured loan, by far the most common is the home of the loan applicant. Some lenders will consider other assets but these tend to be specialised lenders.

Secured loans are amongst the most straightforward of the loan structures. The borrower secures a loan against an asset, normally their home. If the borrower fails to repay the loan, the lender will assume ownership of the asset.

When would a Secured Loan work?

  • Debt consolidation
  • An injection of capital for a business
  • Home improvements, including refurbishments and extensions
  • To raise funding to purchase a second property
  • To repay government-funded loans or property on the help-to-buy scheme
  • Where bad credit may prevent you from taking out a personal loan, but you may be able to use your property as security for a secured loan
  • If your income comes from an unconfirmed source, such as freelancer, or if you take your income from more than one source
  • Where you need to raise funding for any ‘reasonable’ requirement
  • Funds can be raised for any reasonable reason

What are the Pros and Cons of a Secured Loan?

Secured Loan Advantages

  • A secured loan is a long-term loan, allowing you to take a longer repayment term. A lot like a mortgage, your term will be considered alongside your expected retirement age and income.
  • A secured loan spread over a longer repayment period will have a more manageable monthly payment
  • A secured loan means you can borrow more money than on a personal loan, which is normally capped at £25,000
  • You may be able to borrow more than you would with a standard mortgage. Secure loan lenders can let you borrow more by utilising higher income multiples, a higher loan value or both
  • Secured loans have lower rates attached, when compared to other financial products, including personal loans and credit cards
  • A new secured loan won’t impact on any low rate that your existing mortgage might have
  • Secured loans can be a more cost-effective option than remortgaging; this might impact your existing mortgage loan and you might attract costly mortgage exit fees

Secured Loans Disadvantages

  • You will be using any equity in your asset
  • Secured loans can attract extra charges, including a lender arrangement fee and valuation charges
  • Your interest rates might be higher than with a mortgage
  • With a longer repayment term, you might end up paying more over a longer period of time, when compared with an unsecured loan over a shorter period of time

Why is it worth Consolidating ALL your Debts into one Loan?

  • You can control your monthly budget
    A loan will help you manage your personal finances, as it’s only one payment – not many. 
  • Reduce the total amount you owe
    If the combined total interest of all your debt is higher than having one loan interest rate, you will actually save money.
  • Improve your future credit score
    You can take the opportunity of having one payment each month to prove that you are a responsible borrower. Therefore, it will have a positive effect on your credit rating.

 

How might it work for you?

A mortgage is a secured loan that is issued against a property that has been assigned an agreed market value. This gives the lender something of an insurance for the loan in the form of the security of the value of the property. Because risk is mitigated to a degree, it means that lenders can offer secured loans with competitive rates.

When a loan has been repaid in full and according to the loan terms, the security in the property reverts to the owner and they, once again, exercise full property ownership rights.

If a borrower fails to make a repayment, defaults on their loan or is unable to keep their contractual obligations, the lender is well within their rights to start the repossession process. This repossession will be from the property that has been used as security, even if it is a home.

It’s really important that borrowers understand the full implications of a secured loan. A secured loan comes with contractual obligations and could result in the loss of a property if the loan obligations are not met. It is critical that anyone considering a secured loan takes the time to understand the full implications of a secured loan and appreciates their budgetary restrictions before signing a secured loan contract. Secured loans are, typically, longer-term agreements and should be viewed as such to help prevent the loss of assets.

Secured Loans Know-How:

We can give you a quote that lets you see what your options are in terms of secured loans. It’s a free and no-obligation run-down of what’s on the market and what might work best for your needs.

Every borrower is considering a loan under different circumstances, so it’s really important that you give each option careful consideration. It’s your asset but it is also your risk – it will pay to fully understand what it is you are agreeing to. The property used to secure the loan is at risk of repossession if your payment schedule is not maintained. It’s also worth bearing in mind that you can take out an insurance policy that offers protection on your secured loan in cases of redundancy or illness.

Why is it worth Consolidating ALL your Debts into one Loan?

  • You can control your monthly budget
    A loan will help you manage your personal finances, as it’s only one payment – not many. 
  • Reduce the total amount you owe
    If the combined total interest of all your debt is higher than having one loan interest rate, you will actually save money.
  • Improve your future credit score
    You can take the opportunity of having one payment each month to prove that you are a responsible borrower. Therefore, it will have a positive effect on your credit rating.

 

Secured Loan FAQs

What is a secured loan?

A secured loan is a financial product that requires an asset to be secured against it as collateral, or security. The security used for security is most usually a property, particularly a home. A product used for long-term borrowing, a secured loan might be the best option if you are looking to borrow a considerable amount of money.

Also known as a homeowner loan, a secured loan can have more favourable terms and be cheaper than an unsecured loan, like a credit card or personal loan, however your collateral or security is at risk if you do not keep up to your repayment schedule. On the plus side, a secured loan does allow you to borrow in greater amounts, with longer term repayment periods and they typically attract lower interest rates.

Can I get a secured loan?

If you can answer yes to all of the following questions, then you could get a secured loan:

  1. Do you own your own home or have a mortgage?
  2. Does your property have enough equity in it to cover the cost of the loan?
  3. Are you a UK resident?

If you can answer yes, yes and yes, you are eligible to apply for a secured loan.

A secured loan and an unsecured loan – what’s the difference?

The major difference between these types of loan lies in the security needed to take out a secured loan. An unsecured loan will look at your credit history and financial income, however you don’t need to propose an asset as security. Unsecured loans, like credit cards, don’t need collateral. A secured loan – and this is the major difference – requires an asset as security, usually a property. While your unsecured loan isn’t secured against a property, you may find yourself having to sell these assets in order to repay any unsecured debts. Unsecured loans are normally capped at around £25,000 whereas secured loans can be for larger amounts of money.

Typically, secured loans have better rates of interest, in the norm, as the lender views the assets that are used as security to secure the loan as something of a lender’s ‘insurance policy’. If or when a secured loan is not repaid as per the agreed contract, the lender can begin repossession proceedings to assume ownership of the property used as collateral for the loan.

What do I need to think about if taking out a secured loan?

The first thing that you must do if you are considering any loan or financial product at all is to review the market and look at all products and all lenders more closely. Even though you are borrowing money, you still want to secure yourself the best deal possible. To assess the loans, you will need to understand the:

  • Full borrowing costs
  • Loan terms and conditions
  • Annual Percentage Rate (APR)
  • Status of the loan – fixed rate or variable
  • Loan repayment period
  •  Option for early repayment with/without penalty
  • Impact your borrowing might have on your credit score
  • Market value of the collateral you plan to use

Remember to also think about the Loan to Value rate (LTV). This looks at the difference between the value of the asset and the loan size. The greater to difference, the more competitive you might be able to secure the APR and borrowing costs for.

Can secured loans improve credit?

Yes, but that’s also true of most financial products and not just secured loans. Anything that you borrow and demonstrate that you can repay can be used to improve your credit score. Attention to detail is important – you must make sure that you make the correct payment in full – or maybe more – and that you make the payment on time.

There are other ways to improve your credit score, other than to accrue more debt. It might help to talk to one of our advisors – contact one of our team today.

Can I consolidate a secured loan?

Yes, you can – it’s actually possible to consolidate most types of loan when you are undertaking a wider debt consolidation loan agreement. It is important that you look at your individual circumstances to see if this is the right options for you.

Taking a secured loan out does have a risk factor attached and so it is important that you seek financial advice from an independent source before making any decisions. If you are already finding it hard to work with the level of debt and the loans that you have, you might find it tricky to balance even greater debt.

Can I have more than one secured loan at a time?

In principle, you can have as many secured loans as you want or need at one time. That is to say there are no legal limitations placed on the number of loans that you can have. However, there are financial considerations – your financial considerations – to work around.

If you are in a good financial position and want to use secured loans in this way, there’s nothing to stop you applying. But -and it is a big but – you have a shared responsibility with any lender to ensure that your borrowing is appropriate to your financial circumstances and that you are not taking on more than you can repay. You might be able to take out another loan and accepted by a lender, but that will not always be the best course of financial action for you.

If you already have more than one secured loan and are thinking about another, speak to an independent adviser before taking action.

I’m a homeowner loan in negative equity – can I get a secured loan?

You might still be eligible for a secured loan against your property even if you do not hold any equity in that property. There are some secured loan lenders – also known as 2nd charge lenders – that will allow you to take out a loan that is higher than the value of your home. Please seek independent financial advice first.

What happens if I miss a secured loan repayment?

Most loans have penalty clauses for missed repayments. You could face penalty charges, higher costs of borrowing and take quite a dent to your credit score. If you fail to make your regular agreed repayments or fail to make consecutive payments, your lender is well within the agreement to go to the courts to start repossession proceedings. You must maintain a good relationship with your lender and contact them as soon as you realise the you cannot make the payment. You may be able to discuss other viable options with them.

I want to pay off my secured loan early. Can I do that?

Yes, there will most usually be an option for you to pay off your secured loan early, but your lender might charge you fees for early repayment. These charges can be quite hefty. It is really important that you understand these charges before you sign your loan agreement and it can be one of the criteria in your search for a loan. If you’d like to have the option to repay early, then make sure your lender doesn’t impost heavy charges – or make sure you do know how much the charges will be.

A secured loan and a second mortgage – what is the difference?

In short, they are the same. Secured loans and second mortgages use a similar underwriting process. If you are in the process of repaying a mortgage loan on your home and take out a second secured loan on your home, you are, in essence, taking out a second mortgage. The underwriting process for both secured loans and second mortgages are very similar to a normal mortgage application.

If I can’t repay my secured loan, what will happen?

Firstly, contact your lender as soon as you experience repayment difficulties. If the situation is short-term, your lender might be able to offer some options, including a deferred payment plan or offering you a more flexible agreement. However, if you cannot repay and there is no suitable agreement to be reached, the property used as collateral can be repossessed by the lender and sold on so that the lender can gather back the loan amount and any associated costs.

When should I consolidate my debts?

If you’re struggling with more than one debt and you’ve been doing so for some time, it might be worth considering. This is also true of debts that have become expensive and unwieldy to manage. It is well worth investigating a consolidation loan if the interest rate on the consolidation loan is less than your existing interest rates. If you are failing to meet repayment conditions of your current loans, you might benefit from consolidating your debt in one loan. You might find it easier to manage and it might protect your credit score if you are struggling with repayments regularly. A consolidation loan is still a loan, so please do speak to an independent adviser first.

Do secured loans have early repayment charges?

Secured loans most usually have early repayment charges attached. If you are planning on early repayment, do let us know at the point of application as we might be able to suggest some products that more closely match your needs.

Typically, early repayment charges are equal to 8 weeks of interest on balance that’s remaining at the point of repayment. Rates do vary so check with your lender.

What can use my secured loan for?

You can use your secured loan for anything that you want as long as it is legal. You might want to refurbish your property, have a huge wedding, take the trip of a lifetime, as debt consolidation or to help you through the non-tuition costs of higher education. So long as you can repay the loan and the collateral needed for security, lenders don’t tend to judge your reasons for application.

How long can I have my secured loans for?

While unsecured loans tend to have a borrowing period of between 1 and 5 years, a secured loan normally has a much longer borrowing term attached. Secured loans tend to have repayment periods of between 5 and 25 years, but the longer the loan, the greater the interest you will pay in total. With a secured loan, monthly repayments will be more reasonable and affordable over a longer repayment term.

Will applying for a secured loan affect my credit score?

When you apply for a secured loan with us, we will perform our credit check using a soft credit check. This means that it will be visible on your files, however not to other lenders. If your loan is approved and you take out the secured loan, this information is registered on your score file and visible to anyone looking at your file. It is worth noting that multiple applications with rejections in a short time frame will raise a red flag with lenders and impact your ability to find a lender to work with.

What does loan to value (LTV) mean?

Loan to Value (LTV) is a tool used by lenders to work out a loan value in relation to the asset you are providing. If you fully owned your property, with an open market value of £100,000, a loan of £70,000 would generate an LTV of 70%.

What’s a variable rate loan?

This is a mortgage or a loan where the interest rate is not fixed and it will fluctuate over time. Variable rate products are tied to the Bank of England base rate or LIBOR rates. Whereas fixed rate loan products offer a fixed period of lower repayments (maybe the first 24 months), variable rate products do not have their costs set. This means that an increase in the base rate by the Bank of England on a variable product can hike the cost of borrowing up dramatically. However, the Bank of England base rate is sitting – and has been – at a very low rate for some years, making a variable rate attractive to borrowers.

What’s a debt consolidation loan?

A debt consolidation loan allows you to combine all of your unsecured debts – such as personal loans, credit cards and store cards – into one debt, with one lender, one interest date and with a repayment set on the same day each month. While you may stretch the cost of the debt out for longer, it may also make your multiple debts more affordable each month.

How quickly will my application be approved?

We can make a decision on a loan in under 20 minutes but there are other elements to think about with an application such as this. When you have applied for a secured loan with us, we’ll share with you a list of products from across the entire market that match your needs. You can accept of reject these, before committing to a loan.

Once you’ve made your mind up, we’ll work to make sure your funds get to you as quickly as possible.

When will the funds arrive in my bank?

We can normally complete a secured loan application in 14 to 21 days, with the funds in your bank by the end of this period. However, British law stipulates that there must be a statutory 8-day cooling off period to give you the chance to change your mind, even after with an accepted and approved application. Once approved in principal and following the cooling off period, you will them be able to sign the loan paperwork and we can proceed.

Why is it worth Consolidating ALL your Debts into one Loan?

  • You can control your monthly budget
    A loan will help you manage your personal finances, as it’s only one payment – not many. 
  • Reduce the total amount you owe
    If the combined total interest of all your debt is higher than having one loan interest rate, you will actually save money.
  • Improve your future credit score
    You can take the opportunity of having one payment each month to prove that you are a responsible borrower. Therefore, it will have a positive effect on your credit rating.