Secured loans explained

In a nutshell, secured loans enable property owners to lend a lump sum of cash against the value of their house over long repayment terms, usually between 3 – 30 years. Loans can be secured against your house or a buy to let property. The amount you can borrow will vary depending on the equity available and the affordability of the loan. These types of loans are often referred to as second charge mortgages and homeowner loans.

Like your mortgage, the loan is secured which means you use your home as collateral, and the lender could repossess it if you fail to make repayments or you break the loan contract. You don’t usually have to worry about extortionate interest rates because the lender feels secure knowing the arrangement is of low risk.
From the lender’s perspective; they will get their money back either way so they do not need to add high interest charges like they often do when offering with some unsecured lenders in the market place.

Dave Beard, Lending Expert at second charge mortgage specialist Feasible.co.uk explains: “You can borrow from £3,000 to upwards of millions of pounds. Interest rates as of Summer 2018 start from around 4% APRC (Annual Percentage Rate of Charge) for good credit customers and as high as around 15% for those who have past credit issues. There are a range of lenders who offer loans up to 95% loan to value and some will borrow 100% where additional security can be provided. However it is worth noting that the rates are far higher on these products and the lower the LTV (Loan To Value) the cheaper the interest charges will be. The most you can borrow on a buy to let property is currently 75% loan to value.”

Loan funds can be used for any legal purpose such as:

There are lots of benefits to opting for secured loans. As mentioned above; you will usually manage to get better interest rates than you could find with unsecured loans, especially if you have credit issues. You can also get the money pretty fast because you already have the house you will use as collateral. With secured homeowner loans; you can often gain access to tens of thousands of pounds fairly quickly if you have the equity in your home. That isn’t always possible when looking for unsecured alternatives. A benefit is that homeowners are able to borrower larger sums of money and can repay them over a longer period of time which means that monthly repayments are lower and more affordable.

Just as there are many pros to accepting secured loans, there are also  cons too. For instance, if you repeatedly break your contract by falling behind on payments, the lender may start court proceedings and attempt to repossess the house. Also, it is often challenging to find a lender willing to offer fixed rates. They are usually variable, and that means some people might struggle to budget and plan their finances for the future.

Another thing to consider is that most second charge lenders do not accept customers directly which means you will need to use a broker to package and apply to the lender upon your behalf. With this comes additional costs in the form of broker fees which are around 10% of the loan amount. These fees can be added to the total loan amount if you wish.

Make sure you never rush into any form of lending, secured homeowner loans have many pros and cons so you need to weight them all against your situation to work out whether or not they are the right option on the table. If you are unsure then speak with a financial advisor and get professional independent advice.

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