What is a secured loan?


This article will help explain exactly what is mean by a secured loan as well as detail all that is entailed when applying to a secured loan provider. Simply put a secured loan is any loan with which the lender requires the applicant to provide some type of guarantee that the loan will be repaid; this is usually a property or vehicle, however could be any asset with a substantial value.

In most circumstances this guarantee is made on the applicants home which can be repossessed if defaults are made on the repayments: therefore it is usually only homeowners who are eligible to apply for secured loans.

What are the different types of secured loans?

There are two main formats that secured loans appear in, the most common of which is referred to as a first charge loan.Loans taken out with property as leverage that is owned outright are called first charges and tend to be the cheapest form ofsecured loans available. Applicants who qualify for first charge loans are more attractive to lenders as they have direct access to a property's equity should they have to recover their investment.

Secured loans taken out by applicants who havean outstanding balance left on their mortgage are known as second charges.With second charge loans the mortgage company have first claim on any equity released and only then will the loan company be able to recover funds they are owed, if loan repayments aren't met. This makes them of greater risk and therefore you might have to pay higher interest rates as the lender attempts to protect its investment.

How much can I borrow?

On average the sum available on a secured loan tends to be considerably larger than that offered through an unsecured option; this is a result of the lender having a guarantee that whatever happens they will be able to reclaim their investment. The value of the loan could be anything up to 125% of the value of the secured property. The most common values are usuallybetween 5,000 and 150,000, although a higher sum may be possible, dependent of individual circumstances. Manylenders offer there best secured loans targeted at varying degrees of borrowing, so the most inexpensive secured loan for you will fluctuatedepending on the amount you wish to borrow.

What are the interest rates on secured loans?

Rates of interest applied to a secured loan varies on the amount borrowed, the value of the asset against which the loan is secured and the individual situation and credit history of the applicant.Higher interest rates for applicants with a poor credit history are likely to be applied, however secured loan companies are still willing to lend to individuals who fall into this category; especially if the company specialize in poor credit loans.

These higher interest rates can also apply to others who have found it difficult to obtain unsecured credit including the self-employed and those who work on a contract or part-time basis. It is important to compare secured loan rates offered by loan providers before committing to a secured loan; this will ensure you get the most inexpensive secured loan available. However it is important to remember that the typical APR advertised may not be the rate applied to your borrowed amount, it is intended to give you some idea of the range of interest rates they can provide and so the amount you may accrue.

Is payment protection insurance necessary?

The majority of secured loan companies will offer the option of payment protection to be taken out with the loan. This insurance is designed to cover the loan repayments for a certain period of time if you are unable to work due to accident, sickness or unemployment. Although this is an extra cost you may find dependent on your individual circumstances the peace of mind payment protection insurance can offer may be worth it.

Are there any restrictions to a secured loan?

Most secured loan lenders do not put restrictions on what the lent money can be used for, so whether your wish is to consolidate your existing financial commitments or redecorate your property, a secured loan can be a good option.However, it is crucial to ensure you can manage your monthly repayments before committing to any form of borrowing but in particular secured loans as defaulting on your repayments can lead to the loss of your home.


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