Secured Loans
Secured loans (often referred to as 'Homeowner Loans') are secured against something you own, usually a residential property.
The truth about secured loans typical and representative APRs
High Street banks and loan comparison websites like to advertise "typical" APRs for secured loans and "representative" APRs for unsecured loans, to entice borrowers to complete their application form. These typical rates are offered to at least 66% of accepted applications and representative rates offered to at least 51% of accepted applications. However, when you consider that only around 1 in 4 applications are actually accepted, the vast majority of borrowers will be left frustrated and will have to start all over again with another lender.
How do secured loan lenders decide which applications they will accept?
Secured loans by their nature are secured against property. Because of this there are generally seen as a lesser risk by lenders much like a mortgage.
However, secured lenders still have underwriting rules which they will adhere to. Like unsecured loans, lenders will look at the potential borrower's credit history and how they have conducted their previous and current credit or loan accounts.
They will also consider the equity in the property against which the loan is secured against. This equity is the difference between the value of the property and the outstanding mortgage balance.
Lastly, they must consider affordability which put simply, means the lender must decide if the borrower can afford the secured loan based on their income and outgoings.
Based on the three areas of credit history, equity and affordability the lender makes a risk assessment of how likely is it that the borrower will repay the secured loan. If the risk is too high, the borrower will be declined for the secured loan. If the risk is acceptable, then the lender will (subject to other minimum requirements) make a loan offer.
How is the rate you will be paying determined?
Assuming a secured loan offer is made, the Actual APR will normally depend on two things, the loan amount and that level of risk. In broad terms, the higher the loan amount the lower the APR will be. In terms of the level of risk, the higher the risk the higher the APR lenders will charge.
By entering your details once, The Lending Wizard will give you your Actual APRs for all the secured loans you are eligible for. This way you will know your Actual APR, before you apply to your chosen lender.
Does it pay to shop around for the best secured loans?
To shop around you will have to complete an application form for every lender and furthermore, each lender will then conduct a credit search against your name. Applying to multiple lenders in this way, can be damaging to your credit history.
Unfortunately, whilst you might be able to get discount from a car dealer, the lenders have strict criteria so sadly, haggling won't get you a better deal!
So when might it be appropriate to consider secured loans?
If you have experienced credit problems such as County Court Judgements, missed payments or Defaults, you may find it difficult to get an unsecured loan. However, providing you have sufficient equity in your property, you may still qualify for secured loans - no matter what your credit history.
Unsecured lenders can only lend up to £25,000, so if you are looking to borrow more than £25,000 you should consider secured loans or re-mortgages.
If you are want to keep your monthly repayments as low as possible, secured loans can offer more options. They can be taken over a longer period than unsecured personal loans but the downside to this is that the longer the term of the loan, the higher the total amount repayable will be.
If you are looking to free up some equity from your property but you are tied into a mortgage which has early redemption penalties, secured loans offer a way to access your equity without having to pay these penalties.
Under the Consumer Credit Act, lenders can only charge a maximum of 58 days interest for the early settlement of a secured loan.
If you have a prime mortgage (one with a low APR rate) but have recently had credit problems, secured loans will allow you to borrow money whilst still keeping the benefits of your low rate mortgage.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.