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, the property must already have mortgage and cannot be 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.(1st charges are regulated under the new mortgage regulation see here)
Why a Secured 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 £150,000, although some lenders will consider lending up to £200,000. The amount borrowed is repaid monthly over a term agreed at the outset, which will usually range between three years and twenty five years. The rates are often variable and some lenders give the option to fix the repayments for a set term.
Lenders charge interest daily on the amount you borrow, the interest rate is decided by many different factors. These include.
Income type/Affordability/Age
Property type/Valuation
LTV or the amount of equity you have in your property.
Amount borrowed
What Are the Benefits of a Secured loan
Many secured lenders cater for low income earners and self employed people who cannot prove their incomes. This is one of the areas secured loans prevail over unsecured loans. Some lenders will lend money up to and over the age of 85 which is another plus point. Secured loan lenders will secure against most property types that are owned by the resident .IE
Houses, High and low rise Flats, Flats above shops, Ex local authority homes and many more. There are even lenders who can lend on shared ownership properties too.
Equity
The equity is the useable difference between how much the property is worth and how much is still owed to your mortgage company. EG Your property is worth £100,000 with a mortgage remaining of £80,000 you will have £20,000 worth of "straight" equity. If your credit history is good then some lenders will lend you up to 125% of what your property is worth IE: Same property valuation and mortgage balance as before this time you have £45,000 of equity you could use.
Loan Amount
The amount borrowed sometimes it actually works out much cheaper to lend more money! Crazy as this may sound however you can be of less risk to the lender as you would usually be using the extra money to "wrap" all of your finances into that one affordable payment thus saving you more money every month meaning you are less likely to miss payments to the lender and less likely not to get into trouble.
Generally, more people fit the criteria for a secured loan and can be taken over a much longer period than unsecured loans. The lenders are a lot more flexible and more understanding of people circumstances has they have added benefit of security, which provides protection for them 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 more often take out a loan.
They are also useful for larger amounts or where the applicant requires a longer repayment period. There may be a charge for setting up your loan this will be a one of charge and will not be chargeable in advance. You should check each lenders individual policy with regards to this.
Redemptions
With all loans if you repay early you may be charge a fee. This is called a redemption penalty. If you loan is less than £25,000 you can only be charged a maximum of one months worth of interest on an outstanding balance at anytime. If you loan was for more than £25,000 you may be charged up to 6 months worth of interest in the first 2 years and then 1months worth of interest less per year you keep the loan after that.
A secured loan does not affect your mortgage in any way. Your mortgage repayments will not change as should be paid on your normal contractible date.
The positives and negatives
With a secured loan you have a greater level of protection afforded by the consumer credit act of 1974.This states that for loans of £25,000 or under are classed as regulated, This means that if you accept a quotation from a lender you will receive the initial documentation (often called the non sign-ables) 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. Once that 7 days has elapsed automatically and 2nd set of documentation (known as the signables) is sent to you. If you are still happy at this point sign the documentation and return it to the lender and they will process this for you as quickly as possible.
There are often valuations which will need to be carried out and the majority of the time these will cause you little or no inconvenience as they are often undertaken as "drive by's". The cost of the valuation is bore by the lender so no upfront costs there either.
When assessing your application the lender will consider your income and financial commitments they will look at your past credit history and take into consideration any adverse credit such as mortgage arrears, defaults or county court judgements. This is called underwriting an application. Most times being conducted by a human being. Your application will not be work of a credit score which means all your other circumstances are taken into account and an offer tailored personally to you. Most lenders will insist that where an applicant is married, both parties should be jointly named on the application form.
Payment Protections Pay
Income payment protection schemes are often offered by lenders which can be at a very high cost to the end user. This can be very of putting and many people take the risk of not having insurance due to the extra expenses. We have teamed up with the British insurance.co.uk. Who offer a completely seperate insurance which can cover you loan and remortgage repayments if the un-thinkable happens.To take a look at what they have to offer clieck here: http://www.britishinsurance.co.uk/index.asp?siteID=1466
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