If you are a homeowner with equity in your property, you have more options to choose from when you need to borrow money. Although an unsecured loan is an option, you can also apply for a secured loan.
A secured loan can mean cheaper monthly repayments but if you fall behind on your repayments, your home could be at risk. Therefore, you should think very carefully about whether you can afford a secured loan before signing on the dotted line.
If you’re sure that a secured loan is affordable, here’s how to get one.
Am I eligible?
Secured loans are also known as second charge mortgages. To be eligible to apply you’ll need to be a homeowner with an existing mortgage. This is because a secured loan uses your property as a form of security. In the event you don’t keep up the repayments, your property could be at risk.
You will also need to have what’s known as “free equity”. This is the difference between what you owe on your mortgage and the value of your property.
Lenders won’t normally allow you to borrow against 100% of the value of your home. This is to protect against fluctuations in the property market and the possibility that your property might drop in value.
Does my credit rating matter?
The good news is with a secured loan, lenders have much softer borrowing criteria. This is because with a secured loan, there is a way for lenders to recoup their money, if it becomes necessary.
Therefore, lenders are able to agree secured loans for a far wider group of borrowers than would have been possible with an unsecured loan. Even if you have been refused credit elsewhere, you could still get a secured loan approved.
If you have a poor credit rating, you may not get the most competitive interest rates or you may only be able to apply to certain lenders. In some cases you may need a larger deposit. However, as long as the repayments are affordable, if you’ve had credit problems in the past you could still obtain a secured loan.
Rather than making multiple applications, a loan broker can collect your details and offer them to the lenders you’re best suited to. This applies whether you’ve got a good or bad credit rating. A broker will be able to get you the best deal available based on your rating and circumstances, saving you time in shopping around for comparisons.
By using a loan broker, you will also have protection from unscrupulous lenders. There are some which specifically target applicants with bad credit and charge extortionate rates of interest. This can cause your debt to spiral.
What information will I have to provide?
Although a secured loan provides a lender with security, they will still want to check whether you can afford the repayments. Every lender has a duty to be responsible about who they allow to borrow money, and must feel confident that they won’t be causing a debt that you won’t be able to repay.
Therefore in order to make an informed decision, they will need certain pieces of key information such as:
- What is the total value of your property?
- How much is left to repay on your mortgage?
- Is the property owned singly or in joint names?
- What is your income?
- Are you managing your current monthly commitments?
- How much debt do you have already - both credit cards or loans?
- How much would you like to borrow?
- What’s the purpose of the secured loan?
What questions should I ask?
Although the lender will have questions for you, there are certain things you need to know too. Here are some of the main questions you should ask before accepting an offer:
- What will the interest rate be?
- Is the interest rate fixed or variable?
- What is the term of the loan? This means the length of time you will have to pay it back.
- What fees will be payable?
- What is the monthly repayment?
- How long will it take to receive the money?
Making the application
Filling in an application for a secured loan will help to determine which is the best loan to meet your needs. You’ll have the opportunity to review different loan terms and sums to find a repayment level which is affordable.
Remember that making an application is not legally binding and you’re not under any obligation to go ahead with the loan.
If you want more information about secured loans or to make an application get in touch with Loans Warehouse on 01923 678 870.
Although both secured and unsecured loans offer a way to borrow money, they are very different products. If you’re not sure about what’s right for your circumstances, you may want to consider seeking independent financial advice before you apply.