Secured loans: All you need to know about loans for homeowners
Rising needs of people have led to money borrowing in many places. Provided that you own a home, a secured loan- also called a homeowner loan- provides a perfect way of accessing huge amounts of even up to £100,000 at fairly low interest rates.
However, you should always remember that securing a loan against your home can lead to loss of your home in case you fail to meet the repayments. In this article, we will explain some pros and cons of secured loans as well as some tips for getting best deals for your circumstances.
What is a secured loan?
A secured loan is simply the use of one’s property as security against a certain borrowed amount of money. The lenders tend to be happy to lend huge amounts over a long period than they would with personal or unsecured loans as a result. This means that you can borrow between £50,000 and £120,000 over 25 years maximum period. Compared to personal loans, the repayment terms generally involve fixed and monthly payments and also early repayment penalties in case you want to pay off the loan before the agreed term.
By nature, a guarantor loan is unsecured because there is no asset-backed borrowing or collateral. The guarantor is added as an extra form of security so the lender can recover their funds if the main borrower defaults.
Advantages of secured loans
– They are much easier to qualify for compared to the unsecured loans due to the fact that the lender knows that any losses can be reclaimed through the sale of your property in case of a default.
– For those with less than perfect credit files, secured loans can, therefore, prove to be the only option.
– Allows the access to huge amounts of money.
– Secured loans can be repaid over a longer timeframe.
– While secured loan customers with good credit scores are offered low interest rates, those available to unsecured borrowers with the same credit histories are still low.
– The penalties involved if you are unable to repay your loan may sometimes be onerous- especially if your entire home is repossessed and sold off in order to clear your debt.
– It can be challenging to find a secured loan offering some flexible features like overpayments and payment holidays, which can be available from some unsecured lenders.
– During the time of writing, one can reduce almost 2% off the loan rate by just going for the market leading unsecured loan other than the secured deal.
Is a secured loan right for me?
First of all, you need to understand that it is not easy to qualify for a secured loan without owning a home. If you lack one, then you do not need to apply for this kind of loan. Also, if you need to borrow small amounts, you better look for a personal loan especially if the amount is £15,000 or less.
The general rule is that the unsecured loans are probably better unless you need very huge amounts, long repayment period or if you do not qualify for the unsecured loans if you are self-employed or you have defaulted on debts.
What is the representative APR?
The representative Annual Percentage Rate (APR) quoted in loan adverts is the headline interest rate figure a lender utilises for marketing purposes. However, it does not mean that every individual who is accepted as a customer will have to pay the rate. Following the European Union rules, the lenders have to offer a representative rate of 51% or more than half of the individuals they take as borrowers. Those with less than average credit scores will, therefore, be accepted as customers if only they agree to pay higher interest rates. This process is known as risk based pricing and is designed to specifically ensure that all borrowers who pose lower risks to a lender pay the lowest rates.
What are early repayment penalties?
The early repayment penalties also called redemption fees are normally charged when borrowers want to repay their loans prior to the agreed term. Lenders impose these penalties as compensation sources for the interest payments missed out on as a result of the loan being cleared within a short time. These penalties are mostly equivalent to one or two month’s interest, although in some cases the penalties charged tend to start falling as the end of the loan agreement approaches.
In conclusion, before borrowing a secured loan, ensure that you work out the maximum realistic amount that you can repay with ease. To learn more Lending Expert have produced a more in-depth guide on the subject, include lenders, interest rates and product descriptions.