card guide
What Is a Secured Loan?

As Safe as Houses

A secured loan means that you have agreed to put up security for the lender so that if you default on the loan they will use that security to pay off the debt.

The security is usually, although not always, your house.

It’s quite common if you go to a financial institution such as a bank to be asked for security as it takes the risk out of lending you money, because of the certainty they can get all they lend to you back, if for some reason you stop paying the monthly repayments.

It makes little difference whether you own your house or still have a mortgage on it as the bank will simply assess the value of the equity on the property. They do this by deducting any outstanding loans, such as your existing mortgage, from the market value. So, assuming your house is worth more than any outstanding monies owed, and that it is in good condition, it will be acceptable as security for a loan.

Neighbourhood Watch

Watch our for secured loans though, as although it might be easy to borrow substantial amounts of money using your house as security does also mean that the lending institution can ask for that security to be redeemed at any time if you break the conditions of your loan. In other words, they can ask you to move out of your house and they can repossess it; which would leave you with nowhere to live.

So with all these loans always make sure you can afford to make the monthly repayments and that you do everything you can do to protect yourself and your home.

Security!

Other assets that a lender may consider as security might include investment bonds or, if you are self-employed or a director of a company: a stake in your business.

What’s it for?

Secured loans will usually be for any amounts between £3,000 and £50,000. If you’ve got the property to back it up you could even get one as high as £100,000. The term of the loan will be anything from one to twenty years.

Secured loans can be used for anything, including debt consolidation, home improvements, holidays, whatever you like. But if you are intending to go swanning off around the world for a year, be prepared to answer some searching questions!

Because you say so

Just because your loan is secured, doesn’t make the application a “given”. The lending institution will do all the same credit and finance checks on you as they would if you were applying for an unsecured loan or a credit card. So if your credit rating is low, then expect a hefty interest rate. They will also assess whether, in their opinion, you can actually afford the loan repayments in the first place. Just because you say you can, doesn’t mean they think you can.

In calculating the interest they will charge you, lending institutions refer to years and years of statistics that show a person’s income in relation to their ability to repay debt. Undoubtedly the statistics don’t take into account whether you are a particularly frugal person each month or whether you are a spend-thrift, but they do give the lender a good guide from which to start.

If at first you don’t succeed

If you are turned down by a lender don’t automatically assume they won’t reconsider so if it happens to you, try to find out exactly why your application has been turned down: then you might be able to talk to them and work out a compromise.

It’s often worth discussing the loan application further with one lender rather than trying another, as several negative responses from different companies will affect your credit rating.


Posted on: [ November 03, 2017 ]       Add to Del.icio.us   Digg it   Add to Blinklist   Add to FUrl   StumbleUpon