Secured Loans
A Guide to Secured Loans
A secured loan is any loan that requires the borrower to provide the lender with
some form of security. In the case of secured loans, the security will be the borrower's
property, regardless of whether it is mortgaged or owned outright. Loans secured
against property that is already mortgaged are known as second charges, whereas
loans secured against a property owned outright with no existing mortgage in place
are known as first charges. See below for a quick guide to secured loans.
STEP 1 - WHICH LOAN?
Secured home-owner loans are available in varying amounts and for many different
purposes, including debt consolidation. The amount available usually ranges from
£3,000 to £50,000, although some lenders will consider lending up to £100,000. The
amount borrowed is repaid monthly over a term agreed at the outset, which will usually
range between three years and twenty five years. You may be charged a penalty if
you repay your loan earlier than agreed, and you should check each lender’s individual
policy with regards to this.
Lenders charge interest on the amount you borrow, which is referred to as the Annual
Percentage Rate (A.P.R). The amount you can borrow, the term available and the A.P.R
will all depend upon the equity you have in your property, the lender's view of
your ability to repay the loan and your personal circumstances, for example any
adverse credit.
Subject to your circumstances, you may be able to borrow up to 125% of the property
value. The A.P.Rs quoted by the lender will usually be typical rates, and these
act as a guide only as the exact rate offered will be on an individual basis. As
a general rule, it is advisable to compare the A.P.Rs of different loans, as this
is a good way to determine how competitive they are.
Generally, secured loans are much easier to obtain than unsecured loans. This is
because the lender has the added benefit of security, which provides protection
in the event of a customer's inability to repay. This also means that persons who
are self-employed, have recently changed jobs or who have adverse credit can take
out a loan. They are also useful for larger amounts or where the applicant requires
a longer repayment period.
STEP 2 - HOW DO I APPLY?
Lending institutions offer you the option of taking a secured loan via their branch
network, over the telephone, via a written application or online through their website.
Initial assessment of your application can be made quickly, however loans under
£25,000 are regulated, and a 7 day consideration period will be given to allow time
for you to assess the implications of the credit agreement, and to ensure that you
are fully aware of all the terms and conditions.
When assessing your application the lender will consider your income and financial
commitments to determine whether you can afford to take on and repay additional
finance. They will look at your past credit history and take into consideration
any adverse credit such as mortgage arrears, defaults or county court judgements.
All lenders insist that where an applicant is married, both parties should be named
on the application form.
Lenders frequently use credit scoring facilities and credit reference agencies to
assess your suitability. Credit scoring assesses your personal circumstances and
statistics to determine which broad category of borrower you fit in to. Credit reference
agencies provide a detailed analysis of your financial position as they hold information
relating to your credit history, any adverse credit and any existing commitments.
They also provide address and electoral roll information. If you are refused a loan
or wish to make enquiries concerning your own credit file you can apply to the credit
reference agencies for a copy of your credit file. This service is subject to a
small fee.
Equifax PLC
You can also view your credit file with Equifax for only £16.95. They also offer
easy to use online facilities to dispute errors in your credit file instantly.
Post:
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
STEP 3 - HOW AM I PROTECTED?
A secured loan is subject to The Consumer Credit Act 1974. The Act contains strict
regulations about how money is lent and covers loans up to a value of £25,000. Loans
for sums greater than £25,000 are unregulated. When taking out a secured loan you
will be asked to sign a credit agreement, which should be read carefully as the
terms are binding. For regulated loans of under £25,000 the lender must provide
a consideration period of 7 days.
Lenders offer insurance policies and payment protection schemes to cover your monthly
repayments in the event of accident, sickness, unemployment and death (conditions
apply). Cover does vary between lenders, as does the cost, therefore you should
check individual policies for what is included, and just as importantly, what is
excluded.
If you are considering protecting your repayments in the event of accident, sickness,
unemployment or death, why not browse our Mortgage Protection and Income Protection
finders.
If you do experience difficulties with your repayments, seek advice from your lender
as soon as you can. Remember, your property acts as security for your loan and it
is therefore at risk in the event of any repayment problems. The earlier you seek
help, the more sympathetic your lender is likely to be. You can also seek help from
voluntary organisations such as the Citizens Advice Bureau.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE
REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.MISSING PAYMENTS WILL
HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE DIFFICULT IN THE FUTURE.