When shopping around for a secured loan, the first thing to look at is the APR. This is an essential tool in comparing different secured loan products.
The APR is a measure of the cost you will pay for the credit expressed as an annual percentage rate. It does not show the total amount payable, it is designed only as a 'value for money' indicator. It takes into account all the charges made under the agreement, interest, fees etc. It enables you to compare the cost of borrowing between different types of credit products, hire purchase, credit sale, secured loans etc. If a trader is advertising the cost of a credit product it must also quote an APR in the advertisement. It is of course usually a bit higher than the interest rate that you're quoted as it will include the other fees.
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The internet is a great place to look for the most competitive secured loan rates. Many finance brokers are able to search from a range of different lenders to find the most suitable product. Although many of these companies will approach the same or similar lenders when looking for the best rates, their broker fees may differ hugely. For this reason it is a very good idea to approach more than one company in pursuit of a secured loan quotation.
Loans can be obtained for almost any purpose with the most popular reasons for taking out a secured loan being the consolidation of existing debts and the carrying out of home improvements. The loan sizes available will range from £3,000 to £100,000 with most lenders. The amount available to each individual will differ subject to income & the equity in the property. There are certain schemes available that will lender over and above the value of your property up to 125%. Again these schemes will be subject to status.
There are terms ranging from 5 to 30 years. It is important to consider very carefully the term over which you spread the monthly payments of your secured loan. The most important thing to remember is that the longer the term of the loan, the more interest you will pay back over the entirety of the term. This of course will also result in longer the term of the loan, the lower the monthly payments will be.
Why Take out a secured loan?
Secured lending is a way of raising additional finance by way of in most cases, offering your property to the lender as security. Secured lending can offer a fast and easy way of obtaining additional finance for almost any purpose.
Q. But why take out a secured loan when there are unsecured loan deals available where you are not putting your property at risk if you fail to keep up the repayments?
A. Firstly, the interest rates associated with secured loans tend to be lower than on comparable unsecured loans as there is security by way of the property offered to the lender.
Also for the very same reason it may be easier for someone with a poor credit history to obtain a secured loan.
A secured loan will usually offer a more flexible repayment period than that of an unsecured loan. Terms for secured lending will range from 5 to 30 years depending on the lender. For the most part this will result in a lower monthly payment by spreading the repayments over a longer period of time. The disadvantage to this method however is that the borrower will end up paying more interest over the term of the loan
Q. Why take out a secured loan when you can remortgage for a more competitive rate of interest?
A. There are many occasions where a secured loan provides a more appropriate funding solution to a remortgage. The most common situation is where a borrower is locked into their existing mortgage which is subject to an early repayment charge if they redeem the balance. This charge will differ from lender to lender, however it is usually calculated as a percentage of the balance.
The remortgage process carries many different fees including valuation and administration fees, higher lending charges and in many cases, discharge fees, title insurance and telegraphic transfer fees. Secured loans carry NONE of these fees.
For borrowers with a tarnished credit record, if their original mortgage was taken out before running into credit problems, the chances are that raising additional finance through a remortgage would mean paying a higher interest rate on ALL their borrowings. (i.e the WHOLE mortgage) By using a secured loan in this instance, they can still enjoy the prime rate on their mortgage whilst only being charged a higher non-conforming rate on the new secured loan - the additional finance.
Each case must be assessed in its own merits as there are of course other factors to consider.
How do Secured Loans work?
Secured loans or second charges (as they are sometimes known) are a way of raising finance by releasing the equity in your home. Secured lending can offer a fast and easy way of obtaining additional finance for almost any purpose. The loan is secured by a legal charge on your property which then means that if you fail to repay the loan, the lending institution will simply seek repossession of your property.
Secured loans are generally in a range from £3,000 to about £50,000, but can go as high as £100,000 depending on your situation, need and circumstances.
By obtaining a secured loan may enable the borrower to save a significant amount on monthly expenses by either extending the term of the loan, or paying off one loan with another that has a lower APR (Annual Percentage Rate). Secured loan interest rates are typically variable and follow the UK base rates, but can also differ significantly between lenders, so shopping around and comparing rates and terms is essential.
Secured lending falls into two categories; Regulated & Non Regulated.
At the time of writing, loans sizes of £25,000 and under are regulated by the consumer credit act which is overseen by the office of fair trading. Loan sizes over £25,000 are not regulated.
The main difference between the two loan types is that when applying for a regulated loan (£25,000 and under) the customer will receive a cooling off period over which time consideration is given as to whether to proceed with the credit agreement. Over this period, the company may not contact you although you may contact them. Unregulated loans do not have this compulsory cooling off period.
The process of completing an application is quick and straightforward. In most cases customers will provide payslips and P60's as proof of income, or alternatively a self declaration of income is permitted for the self employed if there is difficulty proving income. A valuation is also carried out in most cases on behalf of the lender to ensure that there is good security to lend. Often the existing mortgage lender will be contacted to confirm the conduct of mortgage repayments over the preceding 12 months.
At the back end of the application, the lender will register their charge with the land registry.
It is a grave misconception to believe that as long as the main mortgage repayments are kept up to date your property will be safe. A second charge lender can & will repossess your property if you do not repay the loan.
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