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Secured Loans Explained

By: Jennifer Lowe - Updated: 17 Sep 2012 | comments*Discuss
 
Secured Loan Applying For A Loan

In order to take out a secured loan, you have to be able to provide the lender with some form of security, and in this case that security is property.

It doesn't matter whether you own the property outright or have a mortgage, the lender will secure the loan against your property. Simply put, this means that should you default on your loan, the value of your home will cover the cost when sold.You have to be aware of this before you agree to taking out a secured loan because if you do default on your repayments, your home could be repossessed.If your home is mortgaged, a secured loan is referred to as a second charge and loans secured against a property that is owned outright are called first charges.

Secured loans range in size, usually between £3,000 and £50,000, and can be used for many different purposes, from debt consolidation to completing those much-needed home improvements.

The repayment term of the loan and how much you need to borrow is agreed with the lender at the outset. Make sure at this stage you are clear on all the possible charges you will incur, that goes for the future too.

For example, if you should be in the position where you can repay the loan earlier than the agreed term, the lender may charge you a hefty fee.

It is also important to shop around before deciding on which lender to apply to. When comparing products, look specifically at the Annual Percentage Rate (APR). This is the rate of interest charged by the lender on the amount you borrow and is usually dependent on the amount of equity you have in your property, your ability to repay the loan and your current circumstances.

Be very careful when looking at APR's because in the comparison stage they are given as a guide and the actual interest rate given to you is calculated on an individual basis.

Applying for a secured loan

Applying for a secured loan is very simple, it can be done at your local bank or building society branch, over the telephone, through a posted application or online.

There are many comparison sites that allow you to link directly through to the online application form. Be aware when you do this that the company at the top of the table may not be the best as some of these comparison websites work on a commission basis.When assessing your application, the lender will look into your credit history.

This is where your credit report plays a part. Instead of you having to relay all of your past and present financial commitments every time you apply for a credit card or a loan, your information is held in a central database by two leading credit reference agencies, Experian and Equifax.

When considering whether to lend to you, the lender will search through your credit history, looking for any defaults, CCJs or anything that would make you a risk to lend to.

Each lender has their own criteria that they use to give a potential borrower a credit score. This score is made up of a combination of your credit history and the information you provided on your application form.

If you have a good credit score you will find that you are able to get better deals on financial products and have access to lower interest rates than if you have a bad credit score.

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