Get the best deal on a Secured Homeowner Loan with UK Property Finance!
When would you need a Secured Loan
- Home Improvements from light refurbishments to extensions
- Raise deposit to purchase a second property
- Debt Consolidation
- Capital injection into business
- Repay loans on a help to buy scheme or other government funded schemes
- Bad credit where you might not get a personal loan but could borrow against your property
- Where income source is non-confirming or from multiple sources
- Funds can be raised for any reasonable reason
Advantages of a Secured Loan
- Larger loans – it allows you to borrow more than personal loans which are usually up to £25,000
- Long term – similar to a mortgage, it will allow you to borrow funds for a longer term (depending on your expected retirement age/retired income) which in turn helps to keep a more manageable monthly payment, making it more affordable by spreading the cost
- Borrow more than standard mortgages – Lenders of secured loans will typically allow you to borrow more using higher income multiples or higher loan to values or both
- Lower rates compared to certain other types of finance such as credit cards and certain personal loans
- Allows you to keep your existing low rate mortgage product
- Cheaper alternative to remortgaging as you might be tied into your mortgage product and have high exit charges
Disadvantages of Secured Loans
- Interest rates can be higher than a mortgage
- Upfront costs such as lenders arrangement fees and valuation charges
- As monthly payments are spread over a longer period compared to a short-term unsecured loan, you may end up paying more in the long run
- Using the equity in your asset
What is a secured loan?
A secured loan may initially sound pretty scary; it entitles the lender to claim your belongings to sell them off as their own if you don’t meet their payment schedule. Let’s say you have a secured mortgage loan you need to pay back each month, but you are made redundant, so are struggling to return payments regularly. When searching for a loan, you perceived this as your best option due to your job security, and the ease of obtaining it. However, now, you are under the threat of having your own home, or another asset, being snatched away from you. Your worst nightmare, right? This is essentially what a secured loan is, and it comes in 4 types:
- Mortgage Loan: your home is the collateral.
- Non-recourse Loan: the lender has no more collateral against the creditor after they have taken e.g. their home.
- Foreclosure: mortgaged property can be sold by the lender to pay back the debt.
- Repossession: rather than the home, another asset, like a car, can be taken to repay the debt.
You may be thinking, “why on Earth would anyone choose to go through this!?”. Well, it may not be as silly as it first seems…
What are the benefits of a secured loan?
Easier to obtain: due to the fact that a secured loan is assured on the part of the lenders, there is much less risk for them in terms of ensuring they are paid back. If you cannot collect the funds to ensure your payments, they are entitled to simply strip you of your home. Therefore, even if you have a poor credit rating, you are still likely to have access to a secured loan!
Can borrow more: secured loans can be much larger than a regular personal loan.
Can borrow for longer: with a secured loan, you have longer to pay it back, usually around 5-20 years, instead of the 1-7 years for a regular loan.
Lower interest rate: this is true to an extent, however, due to the length of time you can take to repay these loans, you will eventually incur the same, or maybe even more, interest than a regular loan.
How does this compare to an unsecured loan?
An unsecured loan is simply one that depends more on the borrower’s credit score, so is more difficult to obtain than a secured loan. The interest rates are usually higher, and the payback time is usually shorter. Furthermore, you can borrow less using an unsecured loan, as there is more risk for the lenders.
If you can’t make the payments in this scenario, instead of having an asset confiscated from you, you will more likely be charged additional money, on top of your loan and its interest. Here, the lender can go to court to get their money back.
Read more about the differences here.
How to secure your secured loan?
A good idea is to check comparison websites to ensure you’re getting the best deal. You have to watch out, as some lenders will charge you fees such as legal, administration, and valuation. Some good comparison websites are as follows:
- Know Your Money
- The Loan Store
- Compare the Market
- Money Supermarket
Things to watch out for
These are a few things you need to be aware of before taking out a secured finance loan:
- In general, a secured loan is high risk, so it’s wise to think, “do I have the capacity to realistically pay this back?” before taking the plunge.
- When applying for a secured loan, it is best to be aware as to whether the interest rate is fixed or variable – you don’t want to be caught in the lurch with any surprise costs!
- If you want to pay back your loan earlier than expected, you may be charged with an early repayment fee.
- Be careful before using comparison sights! Sometimes, these can show up on your credit score, so be wary!
You’ve got your secure loan, what now?
The main thing to remember once you have your loan is to ensure regular repayments. If in doubt, perhaps you could do these things to remain safe from losing your belongings:
- Create a savings account so you can dip into this money if things get bad.
- Make sure to stay relevant and useful at work to avoid redundancy!
- Ensure to keep an eye out for available jobs in your field at all times, in case of emergency.
- Although it can be expensive, you can also take out insurance on being made redundant, or long-term sickness and disability.
Struggling to pay back your secured loan?
If you are in the unfortunate position where you already have a secured loan and are struggling to pay it back, do not fret. The best thing to do, at this point, is to notify the lender ASAP, and you may be able to negotiate some terms with them. In fact, most lenders in this boat will be better off if the debt is paid back, so they may avoid actually taking your home. Just be swift in contacting them, and ensure to be amicable and honest.
So, now you know what to think about before diving in to receive a secured loan. I hope these tips and tricks for ensuring you get the best deal will help you in making your decision.
Other Common Secured Loan Queries
Why choose a Secured Loan?
Unlike personal loans, which are typically only available to those with good credit histories, a secured loan enables you to borrow a much higher amount and the interest rates are normally much lower as the lender knows that the repayments are protected.
By using your home as security, you could easily be approved for a loan of £25,000 or more – provided you can afford the repayments.
Of course, it is important to remember that failure to meet the repayments on time could mean that your home is at risk – so you need to make sure that your payment plan is realistic.
Why Not Re-Mortgage Instead?
Although some borrower’s might be better off remortgaging, their homes to raise funds, some mortgages have large exit fees and therefore are a more expensive option. Secured loans tend to be a much cheaper alternative in terms of interest rates.
If you are looking to borrow £25,000 upwards and you have sufficient equity in your property then UK Property Finance are here to help!
When applying for a Secured Loan your acceptance will be influenced by the following:
You can apply for a secured loan even if your credit rating is less than perfect. However, the amount you can borrow and the interest rates you will be charged will be influenced by your credit score at some point during the decision making process. A good credit history will enable you to borrow higher amounts at lower rates – although you can still get a good deal even if you have defaulted on some repayments in the past.
Most lenders will only consider a secured loan application if the borrower has been a UK resident for three years or more. If you have lived at the same address for a considerable length of time, your chances of approval are generally much higher. However, UK Property Finance are able to help out in certain situations when a borrower is looking for a secured loan in exceptional circumstances.
Ability to meet the Repayments Required
If you are looking to take out a loan that is secured on your home then you need to make sure you can realistically afford to make the repayments on time every month. Although the borrowing rates might be low, failure to make the required payments on time might result in the loss of your property.
Is a Secured Loan the best option?
Provided you can make the repayments on time and you borrow sensibly, a secured loan can be an exceptionally useful source of finance. Secured loans can be used for many reasons including home improvements and debt consolidation. The loan itself can be taken out over a period of 1 to 25 years and the interest rates are typically in the region of 5 to 6% per year. Depending on your credit rating and other personal circumstances, your chances of being approved are generally quite high.
Is a secured loan a mortgage?
Although a secured loan is not quite the same thing as an outright mortgage, they are typically only made available to homeowners and they are sometimes referred to as second mortgages by some providers. They also allow borrowers easier access to long-term funds provided the applicant has sufficient equity in their property.
What is a home owner loan?
Homeowner loans are long-term, secured loan product that use the equity in a borrower’s home as a means of securing the debt. Although loans for home owners are often referred to as secured loans, they are slightly different, if only in technical terms, as other valued assets cannot be used as collateral.
Can you get a second mortgage?
If you are looking to get a second mortgage you will need to own a property, although this can be a property you rent out or let someone else live in.
What is an unprotected loan?
An unsecured, or unprotected loan, is a short-term financial product that does not require some type of asset as security should the borrower default. Affordable unsecured loans are usually only made available to those with high credit scores and the repayment periods are typically much shorter than with secured loan types.
What is the difference between a secured and unsecured personal loan?
Secured loans are different from unsecured personal loan products in that the lender will expect some sort of asset as collateral with a secured loan as protection against non-payment. This also means that those opting for unsecured loan products, such as credit cards and personal loans, are not at risk of losing their homes should they default on the finance.
What about second charge loans or mortgages?
Second charge mortgage loans are available on residential and buy to let properties to raise capital, in the event that:
- It is a cheaper financial alternative than a full capital raising remortgage.
- A client is fixed into a current 1st charge mortgage which will generate penalties if repaid.
- A client has a particularly advantageous 1st charge mortgage that they would be unwise to repay via a full remortgage.
- A client has been offered a further advance from their current 1st charge lender but at an uncompetitive rate.
- A client is wanting to raise finance for business purposes, normally not available through a remortgage.
- A client has adverse credit meaning that they will be unable to take advantage of the current historically low 1st charge mortgage rates.
- A client has non-conforming or multiple income sources thus preventing a standard 1st charge remortage.
As everyone’s individual circumstances vary, it is very important that the decision to borrow any finance is made after careful consideration. As the loan is secured against your property it may be at risk of getting repossessed if regular payments are not maintained. It might be prudent to take out an insurance policy to protect the secured loan in the event of illness or redundancy.
Frequently Asked Questions