Secured Homeowner Loans - What Is A Secured Loan and Should I Apply For One?

What is a Secured loan?

A secured loan is any loan that you take out where you use your home or property as security. Because it’s secured on your property or home a secured loans is more easily accessible to people with poor credit record or bad credit histories. This means that you may be able to take out a secured loan even if you’re self-employed, have recently changed jobs, have adverse credit (County Court Judgements (CCJ’s), mortgage arrears, defaults, etc.) or if you have no proof of income.

When Should I Use a Secured Loan?

Secured loans are most applicable if you want to borrow a large amount of money (i.e. £25,000+) or if you have bad credit and you don’t qualify for a loan from your bank. Secured loans usually take longer to arrange than unsecured loans and they usually involve a property survey. You may also have to pay arrangement fees, broker fees and survey fees. Most secured loan deals have early repayment penalties so remember to read the small print. If you are a homeowner and you have a good credit history, provided you want to borrow £25k or less you may qualify for an unsecured loan of up to £25k from your bank or from most finance companies. Some banks will automatically pre-qualify you for an unsecured personal loan if you manage your bank/current account well.

Also, if you’re a homeowner, you may get a lower rate from your bank by using your property as security for a loan. If you borrow money using a mortgage as security you are agreeing that the lender can claim the mortgaged property if you fail to keep to the agreement or if you fail to keep up with the repayments. The risk to the lender is reduced so the interest rate offered is lower. This is why secured loans tend to be cheaper than unsecured loans and other forms of borrowing. The lender has the added benefit of security, which provides protection in the event of your inability to repay the loan.

How Much Can I Borrow and Over What Period

With secured loans, you can borrow larger amounts and repay over a longer period. Thus your monthly repayments will be lower if you repay over a longer period. The amount available usually ranges from £3,000 to £50,000, although some lenders will consider lending more. If you wish to borrow a larger amount or if you require a longer period in which to repay the loan, secured loans may be the most suitable for you. Secured loans are not suitable for short-term cash problems.

One of the advantages of a secured loan is that it allows you to consolidate more expensive borrowings into a single much cheaper monthly payment. Many homeowners choose to take out a secured loan in order to consolidate debts and replace high-interest loans or credit cards with a low-rate loan. The loans being consolidated may include higher purchase loans, more expensive unsecured loans and credit cards.

If you are planning to take out a secured loan, make sure that you can afford the monthly repayments and consider what you’d do if your income situation changed in the future. Also, read the loan agreement carefully and pay particular attention to the rate of interest required, the term of the loan, the repayments required and the total amount payable. If you fail to repay the loan, the lender may repossess your property or home and sell it to repay the loan. Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it. So think carefully before you decide to use your home as security for your loan. If in doubt contact your financial adviser or talk to your bank, they may be able to suggest other ways of raising finance.

Disclaimer: All information at this site is provided for information purposes only. Do not base any finance related decisions on this information. This is not financial advice and should not be used as such.