Get the Facts on Secured Loans

A secured loan is one in which you use some form of collateral as surety for the loan, which reduces the risk for the lender. Most lenders will require an appraisal of the property you use as collateral to ensure it does meet or exceed the amount of money you wish to borrow.

The amount of money you can borrow in a secured loan varies from one lender to another and depends on your individual circumstances, which include your income, your credit history and your ability to repay the loan based on information contained in your credit record about your other debts.

In the majority of cases, you cannot use the same property as collateral for more than one secured loan. The only exception to this is in a home equity loan in which you borrow on the equity you have built up in your home and the collateral is the amount of this equity.

Homeowners are in the best situation to borrow money in this way if they have been living in the home for a number of years and they have repaid a substantial amount of their mortgage. This gives them access to a larger amount of money because they can borrow against the difference in what they owe on the mortgage and what their home is worth on the real estate market.

Secured loans can be used for any purpose. You may need to make renovations or an addition to your home or you may want the money to pay for a much-needed holiday. You can also borrow money in this way to make a substantial investment, such as in a retirement fund.

You also have a longer repayment period when you decide that a secured loan is the one for you. Personal, unsecured loans have shorter repayment terms, such as five or ten years. If you have collateral to use for the loan, you can take out the loan for as long as 25 years, which gives you lower monthly payments.

In the UK, secured loans are available from High Street banks as well as finance companies. Brokers do not give you a loan directly, but they will help you find a lender with the most affordable terms and repayment conditions. By using a broker, you also have access to a wider range of lenders and benefits such as:

• They help get you a loan at the lowest possible interest rate
• You only need to provide your financial details one time. The broker will take your information and then offer the loan to several lenders. This does not mean that you apply to all the lenders. You only make an application once the broker finds one for you that you want to deal with.
• You also get a faster response by using a broker than you would by contacting the lender on your own.

There are risks associated with taking out a secured loan that you must be aware of before you apply. The lender won’t check your credit rating officially until you actually make a loan application. If you are not approved for the loan, this will reflect negatively on your credit report. You must also be diligent in making your monthly payments when you do get approval for the loan.

Failure to do so will result in the loss of your home because the lender will have to sell it in order to recoup the money you borrowed.

In this time of uncertainty in the financial and real estate market, you do have to make sure your home retains its value. You can borrow money in a secured loan today and there is a chance that the value of your home can decrease due to various circumstances. If this happens you could find yourself with negative equity in which the sale of your home would not net you enough money to pay the loan off in full if you find yourself in financial difficulty and unable to meet your monthly payments. The outstanding balance of the loan would be more than the property is worth.

Secured loans are available to those with a damaged credit rating because of the nature of the loan. When the lender has property it can repossess and sell to get back the money, you have more borrowing power no matter what your credit rating may be. Those with a poor credit record though will have to pay a higher rate of interest on the loan due to their poor credit history. This is another way in which the lender can recoup some of the losses it may incur because lenders do not want to have to repossess a borrower’s home unless there they have no other recourse.

When you decide that a secured loan is a way in which you can obtain the money you need for whatever purpose, you do have to keep these key facts in mind about the repayment.