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What are Secured Loans?

Secured loans, otherwise known as a homeowner loan, allows homeowners to borrow large sums of money using their property as a security against the amount borrowed. The market is full of secured loans, each with their own terms and rates which you need to take into consideration when you apply for this kind of borrowing.

Secured loans have made headlines in the last few years – for good and bad reasons – but with our guide, we hope that we can point you to a few different solutions and bring you to a better understanding of this source of borrowed finance.

Note: Whilst they are also known as a homeowner loan, these loans can be based off other large value assets. 

There are many different stages that go into taking out a loan, none more so important when it comes to the kind that is high in value and one that can have an impact on your asset if you fail to repay your loan. In this case, missing payments can lead to losing your home/high valued asset which you have borrowed against.

That is why secured loans need to be thought about carefully before securing your finance from a credit broker or lender as the consequences of a missed payment can be significant.

There are lots of alternative options where the ramifications of a failed payment or payments aren’t as severe. Knowing the total amount borrowed, what your repayments are, and if they are affordable is going to be part of your own assessment before applying for a secured loan.

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Secured Loan Quick Guide

Check out our quick guide for useful tips before you apply for your loan:

It is generally the case that secured loans are an option for those who are refused an unsecured loan. They can be useful if done properly to help build your credit score and credit history but only if you repay your debts on time.

From home improvements to financing a business project, secured loans are a way to borrow money which need to be considered carefully. There are other, less risky methods of borrowing in the marketplace after all. Failure to repay your loan can mean you home may be repossessed or a poor credit score which will affect future borrowing.

As already discussed, missing a payment and a series of payments through a secured loan can have severe consequences on your home ownership. Repossession of assets or losing your home is a possibility if you don’t pay your loan back on time.

Missing repayments can also affect your credit score and impact on any kind of short to medium term borrowing in the future.

Personal loans, otherwise known as unsecured loans are one of the many and most common alternatives. Whereas with a secured loan, lending is based off the value of an asset, and unsecured loan goes about borrowing a sum of money from a lender with an agreement to pay it back over a set time period in fixed monthly repayments.

You are not putting debts against your home – or any other asset by that means – and you are borrowing with a fixed term interest rate. Lenders can’t suddenly up your payments or repossess assets as part of the agreement that you take out.

If you were looking to borrow between £1000 and £25,000, an unsecured loan is one of the most common loans on the market. However, with some forms of unsecured loans, borrowing is not always guaranteed. If you were looking to borrow over £15,000 it can be harder using more traditional lender models such as credit cards and personal loans.

Remortgaging is another alternative to a secured loan. With rates as low as 2.5% this can be a suitable alternative solution but, you will also need to consider if the upfront costs and the repayment terms (a longer period of time to pay the interest on the mortgage) are cost effective.

If they’re advertised on TV, they must be fine – or so the logic would dictate. But as we’ve seen, secured loans have associated risks. These include things like;

  • Home repossession
    Secured loans are a debt that are secured on your property (or some other form of large asset). Failing to repay any of the loan means that your home can be repossessed.
  • Rates are fixed but sometimes, they’re variable
    Whilst some of the lending is done at a fixed level, variable rates apply to a lot of different secured loan products. That means lenders can up your payments whenever they want to.
  • Repayments are done over many years!
    It sounds like a good thing when the lenders say, “one easy low monthly repayment” but that’s not the whole story. These low payments are designed to be over a longer period of time so the debt is stretched meaning that you pay more interest, costing you even more money.
  • The impact on future borrowing
    Any kind of default payment will affect your future borrowing, and potentially for many years. You credit rating could be significantly impacted. You may want to check your credit score or do a soft search credit check with a credit company to see if you can borrow from an unsecured loan as well.

Understanding what your requirements are before you take out a loan is an important step in your financial decision making. There are a few quick tips that you can keep in mind when doing this;

  • Repayment terms
    Basically, what are you going to pay back every month, for how long and at what level of interest rate. You will also need to clarify if the interest is fixed or variable as you don’t want to budget for one sum and then see your repayments change over time.
  • Affordability
    This comes under repayment terms but the simple question to ask is, ‘is what I’m going to be borrowing affordable to me in the short/medium/long term?’
  • Who is the lender?
    Do some research as to who the lender is and whether they comply with the current financial laws and regulations. A Google search will help you find the information you need.

Making sure you get the correct product and deal is essential before taking out any form of borrowing. Our easy to navigate tool allows you to do that, comparing what is essential for you to make an informed decision.

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