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All About Secured Loans
A secured loan is a loan agreement in which the borrower pledges property as surety for the loan; hence they are also known as homeowner loans. If the borrower continually defaults on loan repayments, the lender may take action to reclaim the debt including selling the property.
Advantages and disadvantages
With something as valuable as your property at stake; lenders know that you are likely to stick to the agreement. Add in the extra financial security provided by your property and it?s easy to see why lenders regard you as low risk. As a result you can expect interest rates one or two points lower than with an unsecured loan, you can borrow greater amounts; anything up to 125% of the equity in your property, and you can spread the loan over a longer term.
The main disadvantage of a secured loan is the attendant risk of losing your property. You need to be absolutely sure that you understand the terms and conditions of the agreement and that you can meet loan repayments. If you find yourself in financial trouble most lenders will be sympathetic and do everything that they can to help reschedule repayments. After all, the last thing they want is to face a lengthy court case incurring hefty legal fees. However, it?s important to understand that your property is at risk.
Should I take out a secured loan?
Before you take out a secured loan, think carefully about what you need it for. Secured loans can make astute financial sense in the right circumstances, for example: if you want to consolidate a number of smaller expensive debts, such as credit cards, into a single monthly payment. However, if you intend to use the loan for purchase, such as a new car or holiday, it would be wiser to start saving.
There is a convincing argument for arranging a secured loan to pay for home improvements; as this will add value to your property. However, any pay-back will be in the long-term and depends on the buoyancy of the property market.
Finding the best deals
Everybody knows that there are great loan deals available on the Internet; the difficulty lies in finding them. Unfortunately there are no real short cuts and the key is to do as much homework as possible first.
Start by getting in touch with a number of brokers (make sure they are FISA registered) and see what they can offer you. Larger brokerages can be motivated by hitting sales targets and you may find that they try to push a particular lender.
FISA regulations stipulate that lenders may not initiate contact for seven days after sending the initial loan agreement. This ?cooling off? period is to allow potential borrowers to consider their options. Use it carefully to compare brokers. Remember that you are under no obligation until you have signed the loan agreement.
Don?t be fooled by unrealistic loan offers made over the phone. Unscrupulous lenders often promise unrealistic rates in the hope of getting their hands on your pay slips. Once they have your documentation; loan conditions are often then revised. If this happens to you; go elsewhere.
If you are still having difficulty finding a suitable loan; consider approaching and Independent Financial Advisor.
All About Bad Credit Secured Loans
Bad credit secured loans are a relatively recent addition to most brokers? portfolios. Just a few years ago a less-than-perfect credit history usually meant the end of the financial road. However, today there are a variety of products to choose from; some of which are surprisingly attractive.
What is bad credit and how does it affect me?
Even if you are unaware of it; the chances are that your credit history is already logged with a Credit Reference Agency. Many factors go into calculating your credit score, including: how much you borrow, how you spread your debts (credit cards, hire purchase, mail order etc) and how regularly you meet repayments.
Banks and other lending institutions use your credit score to calculate how much of a borrowing risk you will be. The lower the credit rating, the greater the risk you are considered to be. Lenders typically offset risk by charging higher interest rates.
Youve probably seen companies offering to repair your credit profile. In reality there?s little that they can do that you can?t. And you?ll have to pay. Instead visit www.experian.co.uk or telephone 0870 241 6212 and you can order a copy of your credit history for just ?2.00. Check that all details are correct and fully up-to-date.
Can I get a secured loan with bad credit?
Youve received your credit report, and the news is bad. Your credit rating is scraping the floor. The good news is that it is still possible to obtain a secured loan. A number of financial institutions have loans specifically tailored to people with a history of adverse credit.
Loan terms vary from lender to lender and the best advice is to shop around. Anyone with serious credit problems, including default notices and CCJs, will be looking at higher interest rates, but this is often balanced out against the amount of equity available in the property.
How do I find the best deals?
Just because you have a bad credit profile; doesn?t mean that you?ll be punished with sky-high rates. The secret to finding the right loan is to do as much homework as possible. A good broker will know which of their lenders are happy to overlook various black-marks on your credit history. For example: one lender may disregard CCJs which are more than three years old, while another will ignore credit defaults all together.
Should I take out a bad credit secured loan?
Before taking any major financial step, you should always think carefully about how this will affect your future. One of the best reasons for taking out a bad credit secured loan is to repair your credit rating and get back on track. If you are already paying high rates on a variety of credit cards and other loans, a secured loan may be the lifeline you need; helping you to get out of debt for good. When youre making your decision, sit down and calculate exactly how much interest you are already paying on your current debts. Then look for loans which offer lower rates of interest. The right secured loan will get rid of the debts that are damaging your credit rating, as well as saving you money in the long run.
Personal Loans and Lines of Credit
Personal Loans
Normally, a personal loan is unsecured meaning there is no collateral. When you obtain a personal loan, you borrow an amount of money for a set period of time and pay interest on the outstanding principal balance. Personal loans are often acquired to make a specific purchase, such as furniture, major appliances, consolidate other high interest loans into one monthly payment (debt consolidation), home improvements, and income taxes. Most personal loans are obtained from a bank, credit union, or savings and loan, and have a fixed term. If you make the regular payment each month, you will eliminate the debt within the term of the loan. Because personal loans are unsecured, you typically need to have good credit, unless the loan is a ?payday loan? which is secured by a post-dated check and is normally granted with out any sort of credit check.
Personal Lines of Credit
A personal line of credit is a common alternative to a personal loan. When you apply for a line of credit, the lender establishes a credit limit which is always available to you. They are used just as a credit card would be used and typically used for unexpected expenses. You can pay off the balance each month to avoid interest charges and keep the credit line open for future needs. You may borrow what you need, as you need it, in any amount, as long as your outstanding principal balance does not exceed your credit limit. If you reach your borrowing limit, you can pay down the balance and then borrow more. Personal lines of credit are usually unsecured. Typically, there is no fixed repayment period as long as you make the minimum monthly payments and interest rates are normally lower than credit card rates. If your line of credit is with a financial institution, you likely access it with a check, a debit card, or a withdrawal slip. In most cases, banking institutions will link your line of credit to your checking account (often called an overdraft line of credit). As with personal unsecured loans, credit lines are easier to obtain if you have established credit.
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