The Essential Guide To Secured Loans.


What does the term Secured Loan mean?

This article will help explain exactly what is mean by a secured loan as well as detail all that is entailed when applying to a secured loan provider.

Asecured loan is any form of borrowing where the loan provider demands the applicant provide a guarantee that all of the repayments on the loan will be met; this is usually in the form of your home or another property. In most cases this guarantee is made on the applicants home, which can be repossessed if failure to meet repayments occurs: therefore it is usually only homeowners who are eligible to apply for secured loans.

How much can I borrow?

The most common values available with a Secured Loan are usuallybetween £5,000 and £150,000, although a higher sum may be possible, dependent of individual circumstances, the value of your home, existing financial obligations and credit history will all impact the amount you will be permitted to borrow. Generally speaking the amount of money available with aSecured Loan is notably more than that which would be accessible with a unsecured credit source; this is down to the fact the creditor has a way of recouping costs, should the loan be defaulted upon. The value of the loan could be anything up to 125% of the value of the secured property.

How much will I end up repaying?

Rates of interest applied varies on the amount borrowed as is typical of any form of borrowing, the value of your property against which the loan is secured and factors such as; income, existing financial obligations and credit history will all impact the amount you end up repaying.Applicants with a less than desirable credit history or a large outstanding balance on their mortgage are likely to be given the highest interest rates, as they pose the highest risk to the lenders investment. Applicants with a good credit history and little or no outstanding mortgage balance with receive the lowest interest rates, however those who fall into the first category should not worry, loan providers are still willing to lend, and even with higher interest rates, Secured Loans still offer inexpensive access to funds, however it may be worth seeking out a specialist who deals with Secured Loans for those with bad credit, as they are more likely to approve you in comparison to mainstream lenders.

It is crucial to keep in mind that the APR advertised may not be the rate applied to your loan. The purpose of the advertised APR is to attract borrowers and to inform you of the range of interest rates they can provide. These higher interest rates can also apply to others who have found it difficult to obtain unsecured credit including the self-employed and those who work on a contract or part-time basis. It is important to compare secured loan rates offered by loan providers before committing to a secured loan; this will ensure you get the most inexpensive secured loan available.

Are all Secured Loans the same?

Answered Secured Loans appear in two common forms, the most popular of which is known as a first chargeSecured Loan.Frequently the most cost effective type of Secured Loan, the term refers to a type of loan accessible to those that own their home outright, with no outstanding mortgage balance. In the eyes of Secured Loan providers applicants who are eligible for first charge loans are always more desirable, as if the worst were to arise and the funds needed to be recouped, the loan provider would be first in line in terms of creditors, rather than coming second to the mortgaged lender in case of s second charge Secured Loan, making them a less risky investment for lenders.

The other types of Secured Loan is known as a second charge loan and describes the borrowing of funds which is guaranteed by a property with an outstanding amount of money left to settle on the mortgage. In the case of second charge loans the mortgage company have first claim on any equity released and only after this has happened will the loan provider be able to recoup funds owed. This greater level of risk is the reason why then tend to be a more expensive form of borrowing than a first charge Secured Loan, the greater the amount outstanding on your mortgage the greater the risk you will perceived to be to the lenders investment, as a result borrowing amounts are commonly lower than those permitted with first charge loans, and interest rates are almost certainly higher.

Do I need payment protection insurance?

By law all lenders must at least make you aware of the option of payment protection insurance or PPI, and with the recent negative media surrounding them it is easy to quickly dismiss them, however they do provide a safety net than many applicants could need during the term time of their loan, the trick is to know whether you need one or not. This insurance is designed to step in and pay the loan repayments for a length of time if you are unable to, due to accident, sickness or unemployment.Although it may seem like an unnecessary additional cost when taking out the loan, if you hit financial difficulties it could end up saving your home and may prove to be a prudent decision.

Are there any restrictions I should know about?

Restrictions are rare on Secured Loans and funds can usually used for whatever you wish, common used for funds obtained through a Secured Loan include debt consolidation, home improvements, wedding finance or that trip of a lifetime you’ve been planning.However, it is crucial to ensure you can manage your monthly repayments before committing to any form of borrowing but in particular secured loans as defaulting on your repayments can lead to the loss of your home.


Please Note: is not authorised to give advice under the ASIC (Australian Securities & Investments Commission).

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