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All you need to know about secured loans

There are lots of options out there for people looking to borrow money, but with so much to take into consideration it can be difficult to know which type of loan is right for you.

If you’re after a large amount of money, a secured loan may well be the ideal option. So what exactly is a secured loan?

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What is a secured loan?

A secured loan does what it says on the tin. It’s a loan that is secured against a valuable asset that belongs to the borrower. Typically, the borrower’s home is used as collateral, which is why you might also see secured loans called homeowner loans.

If you borrow a secured loan, your home will be used to give the lender a level of security. This means that if you are unable to make repayments on your secured loan, the lender can repossess your home in order to regain the money. That’s why it’s important that you consider how affordable a secured loan is before you apply, and that you make sure you’ll be able to keep up with repayments every month.

But while there is associated risk, a secured loan has many advantages over an unsecured loan.

What can a secured loan be used for?

In short, a secured loan can be used for anything you like. But there are a few common reasons why people opt for secured loans over unsecured loans, including:

  • Debt consolidation - If you have a number of different debts from multiple loans or credit cards, keeping track of all those repayments can be tricky. By consolidating your debts, you take the hassle out of managing your money. Secured loans are great for this, and give you the chance to simplify your finances by dealing with just one creditor.
  • Home improvements - Whether it’s urgent repairs, an extension, or even a decorating overhaul, a secured homeowner loan gives you the money that you need to get the job done without putting yourself under any financial strain.
  • Secured business loan - Businesses of any kind require large sums of money to get off the ground, expand current operations, or to solve any cash flow issues. A secured loan can provide access to all the necessary funds needed, avoiding any difficulty with finances in the process.
  • Major purchases - If you’ve got a big purchase in mind, a secured loan gives you instant access to the money that you need to make it a reality.

The great thing about secured loans is the flexibility that they offer you as a borrower. Secured loans give you access to more money than unsecured loans, and you can also negotiate a longer period to repay a secured loan - often with lower rates.

How much money can I borrow with a secured loan?

Since a secured loan is attached to your home, you’ll typically be able to borrow much larger amounts of money than those offered by unsecured loans. The amount that you can borrow depends on the lender’s criteria, but they will not be looking to lend more than the value of the equity on your property.

How to apply for a secured loan

You can apply for a secured loan in a number of ways, but many find that applying online is the easiest and most convenient way of getting a homeowner loan. Secured loans can also be applied for at your bank, over the telephone, or through a loan broker. The application process for a secured loan can take anywhere from two to four weeks on average.

However you apply for a secured loan, the process will contain a number of steps. The lender will ask you to provide a few pieces of information, including your name, address and contact details. They will also ask how much you want to borrow, how long you would like to pay it back over, and why you need the loan. The lender will also need some information about your finances, such as your mortgage balance and whether you have any other homeowner loans secured against the property.

If you apply for a secured loan through a broker, they will use the information that you provide to search a panel of secured loan lenders and find the most suitable options for you.

The benefits of a secured loan

Because a secured loan uses your home as collateral, that means you can borrow a larger amount of money than if you were to take out an unsecured loan. A secured loan allows you to borrow anything from as little as a few thousand pounds to £100,000 or more. The equity value of your property is the main limitation on how much you can borrow, but you’ll more than likely be able to borrow the exact amount that you need with a secured loan.

Another advantage of a secured loan over an unsecured loan is the length of time that you can borrow the money for. The loan term on a secured loan is very flexible, and you can repay the loan over a period of anything from 5 to 25 years. And because you have longer to pay it back, this means that monthly repayments can also be lower with secured loans.

Can I apply for a secured loan?

Every lender has different criteria that you must meet in order to be accepted for a secured loan. In every case, though, you’ll need to own a property that can be used as collateral for the secured loan. This can be your home, any other real estate that you own, or a buy-to-let property.

You don’t necessarily need to own your home outright in order to apply for a secured loan. If you have built up enough equity through your mortgage, you could still be eligible for a secured loan. Lenders look at the value of your home when considering whether or not to lend to you, also taking into account your personal credit history to decide if they will accept your secured loan application.

If you are a tenant and currently rent your home, you won’t be able to apply for a secured loan. This is because a secured loan requires a property that you own to use as security should you be unable to repay the loan.

What are the rates for secured loans?

The APR for secured loans varies from lender to lender, but secured loan rates are typically much lower than those for unsecured loans. This is because a secured homeowner loan has the security of the cost of your property in the event that you default on repayments. And because the term of a secured loan is much longer than an unsecured loan, your monthly payments will be cheaper and more manageable.

Bad credit? No problem!

If you have a bad credit history, borrowing money can be extremely difficult, if not impossible. Unsecured loans have no security if you can’t repay the money, and a poor credit history indicates to lenders that you have struggled to manage your finances in the past. For this reason, it’s highly unlikely that an unsecured loan lender would accept your credit application.

Secured loans, on the other hand, have a high level of security in the event that you default on repayments. Because a secured loan uses your home as collateral, lenders have a safety net in place. This means that the lender is sure they will get the money back, either through repayments or the sale of your property. That’s why secured loans are a great option if you have a bad credit history or a low credit score.

An Important Warning

Borrowing money for any reason and in any circumstances needs to be thought about very carefully.

You need to think carefully before securing any debts against your property, if you fail to make the repayments for any reason you could be at risk of loosing your home.

If you are unsure, or need any advice then please visit moneyadviceservice.org.uk