If you own your own home, need funds, and are being refused elsewhere, a secured loan could be one of your best remaining options. With a secured loan, your property is placed as collateral. Fail to make payments and the loan provider has the right to sell your property to get their money back. A lot of people turn away from the idea, but when you’re options are limited or you already have a costly pile of debt that you’d like to cut the cost on, this can be one of the most favourable ways you can access the amount you need.
In this article, we’re going to highlight 6 vital factors that you really need to know before you apply. Have a read through to see if a secured loan really is the right way to go in your circumstances.
We’ll start with:
- Secured loans don’t require a great credit score
If you apply for an unsecured personal loan, the loan provider will check your credit report thoroughly and will more than likely refuse you if your credit history isn’t strong enough. With a secured loan however, your credit score isn’t as important a factor. It’s much easier to be accepted for a secured loan if you have a very poor credit rating.
It’s for this key reason that so many people in difficult financial circumstances turn to secured loans to access the money they need. When all other loan options or lines of credit are out of reach, as long as you own your own home, a secured loan is a viable option.
- Secured loans can offer larger amounts
Typically, unsecured loans tend to be limited to around £35,000. Need to borrow more than this? Secured loans come with higher limits because they’re less risky for lenders. In most cases, you’ll be able to borrow up to £75,000 or more with a secured loan.
- Longer terms mean lower monthly repayments
The longer the loan period, the lower your monthly payments will be as the cost is spread over a larger amount of time. Most unsecured loans are arranged with terms that span up to 7 years. Secured loans on the other hand, can be arranged to span over more than 15 years. The interest you pay in total may be higher, but many people prefer loans with longer repayment periods because the monthly costs are often far more manageable.
The terms of your loan are always detailed in your offer. It’s crucial that you go over and understand your terms before agreeing to any loan arrangement.
- APR Is not always the complete picture
When you compare loans, most people will be looking mainly at the annual rate percentage (APR) of each loan they come across. This rate is advertised as the figure that covers all charges as well as the interest rate within the loan, but it’s not always the only aspect you should be concentrating on.
Payment protection insurance is a product that protects you from failing to repay should you become sick, lose your employment or suffer an accident. The APR doesn’t have to include this added cost, so you’ll likely be purchasing it unknowingly should you conduct your search purely on APR alone. If you think PPI sounds like a good idea, you should be comparing the total cost of each loan (each monthly repayment times the length of the loan period), rather than simply weighing up APR figures.
If you use comparison sites like MoneySupermarket, be sure to keep an eye out for entries that don’t show their inclusion of PPI clearly.
- Paying early isn’t always a good idea
Secured loans don’t usually come with flexible terms. This means paying early can result in early payment penalties. These loans can be very helpful in granting you access to large funds or reducing the costs of your debts through consolidation for the long term. They aren’t as appropriate if you plan on paying them back as soon as you can afford to.
- Secured loan providers are more on your side than you think
It’s in the finance providers’ best interest for you to repay your loan successfully, so that they don’t have to repossess your home. Most people think that lenders would love the opportunity to claim your property. The truth is, lenders like UK Property Finance Ltd make less profit if they are forced to repossess than they do if you manage to repay what you owe as agreed.
This means your loan provider is always going to prefer trying to shift things around to help manage your circumstances. If you fall into trouble and struggle to make your repayments, the best thing to do is communicate with your loan provider. They’ll more than likely be happy to rearrange your repayment schedule to suit your needs.
Those are our 6! We hope you’ve found this quick list of pointers helpful. Having a good look around and comparing your options is vital to landing the perfect secured loan to suit your needs. Knowing your stuff is half the battle, so keep the above factors in mind to have the best chance of picking the solution that suits you best. Happy hunting!
Disclaimer: This content does not necessarily represent the views of IWB.