Secured loans, which are also sometimes referred to as homeowner loans due to their connection to property, are a way of borrowing larger amounts of money for lower charges than usual. This is achieved by using an asset as collateral on the loan – usually a homeowner’s property. One of the main advantages is that it allows you to borrow more than on an unsecured loan, which often have a borrowing limit of £15,000.
Secured loans are also a beneficial product for those that may have a less-than-perfect credit rating, as a secured loan application is more likely to be accepted by a lender. This is due to the collateral supplied by the borrower. Because of this security, the interest rates may be lower than for an alternative unsecured loan. Naturally such loans are thus risky for those looking to borrow as their home could be at risk if repayments are not made. Borrowers should always be confident that they can repay what they owe on time. Secured loans may also come under the name of debt consolidation loans, home equity loans or second mortgage or second charge loans. First charge mortgages can also be secured, but are rarer. Logbook loans are loans whereby a vehicle is offered as collateral.
Secured loans can be taken out for amounts ranging from £5,000 to as much as £125,000. Thus, they allow borrowers to take out larger amounts of credit than via other types of loans. Whilst rates vary, often advertised rates start at about 5% or 6%, so competitive interest rates can be obtained for borrowers. However, the total amount repaid over the course of the loan may be greater than other types of loans.
By setting up fixed monthly repayments, you can set up a repayment structure that suits your budget. Thus, you can plan accordingly safe in the knowledge that what you repay each month will not fluctuate. Secured loans tend to be very flexible, and you can choose from a range of amounts to borrow. You can also be flexible with repayment periods.
The amount available to borrow will depend on numerous criteria. These will include your credit rating, income and existing credit amounts. Also relevant is the amount of equity in your home. So whilst secured loans can be obtained for up to £125,000, these won’t be available to everyone. Many will only be able to borrow a fraction of that amount. Of course, this could be said of any loan – terms depend on individual circumstances.
Also, as the loan is secured against a property, that property could be at risk and even lost if regular repayments are not made on the loan.
The natural alternative would be an unsecured loan, which does not put your property or other collateral at risk. It may also come with lower interest rates, depending on the deals available. Certain borrowing levels trigger lower rates, as you go up in amounts. However, this would refer to amounts generally under £15,000. When you go over that amount, borrowing unsecured can become more difficult, due to the amounts involved.
For larger borrowers therefore, the alternative may be to remortgage a property to free some cash. If this seems too big a step that should not be taken lightly. Mortgage rates for those with a large deposit – or in other words a lot of equity – currently start at less than 2%. On the downside, there may be a large upfront fee, and a remortgage extends the period you will be paying off your property. Thus the total amount you will end up paying.