Secured Loan Advice

31-Aug-2007

Obtaining a secured loan can be one of the cheapest ways to acquire a loan, because the security you put against the loan means that the lender can charge a lower interest rate.  Basically, a secured loan is a loan where the consumer?s home, or another valuable asset, is used as collateral to secure a loan from the lender. However, compared to unsecured loans, the risks surrounding secured loans are significant. In most cases, your home must be used as collateral against the loan, so it can be repossessed by the lender if you fail to keep up with repayments. With this in mind, taking out a secured loan is a decision not to be made lightly. Using your home as collateral against a loan is a big risk and it is vital to keep up with repayments.

Secured loans are usually significantly larger than unsecured loans, ranging from about £5,000 to £75,000 and can be repaid over a longer term of up to 25 years. Lenders will charge an annual percentage rate (APR) on the amount you borrow. At present, interest rates on secured loans range from about seven percent to eight percent.

When shopping for any product, financial or otherwise, it always pays to shop around. Approach a number of lenders to see who offers you the most favourable interest rate. Also examine the terms and conditions of the loan closely. For example, some lenders will penalise you if you pay off the loan early. This is known as a redemption fee. However, if you feel you might pay off the loan early, thus saving money on interest repayments, find a lender who does not charge these fees, or negotiate so that the your lender agrees to waive such fees.

There are countless banks and financial services offering secured loans in Britain today, and there are many ways you can apply. You can simply visit an outlet of any high-street bank, or you can apply by phone, online or by a written application.

The amount you can borrow will depend on the value of the collateral and your own financial situation. If you are self-employed, unemployed, or if you have a poor credit rating, the amount you can borrow will most likely be limited. However, if you are in a sound financial situation with a steady income you may be able to borrow up to 125 percent of the value of your collateral.

On smaller secured loans, under £25,000, you will be given seven days to make sure you are happy with all the terms of the agreement. If not, you can cancel the agreement within this seven-day limit. Meanwhile, the lender will assess all aspects of your finances to assure you can meet repayments. The lender may also want to examine your home, or other collateral, to determine its true value.

If you have a poor credit history, be honest with the lender. This information will most likely be already on record and, since the loan is secured, most lenders will offer a loan in any case, although the interest rate might be higher due to the increased risk.  Of course you will have to keep up with your repayments, but British legislation offers some protection for consumers when it comes to financial services. All secured loans are covered by The Consumer Credit Act of 1974.

If you do run into financial trouble and it looks like you may miss a repayment, you should contact your lender immediately. This may be daunting but any lender will be happy to receive communication and some may be surprisingly helpful by offering to defer repayments or reduced repayments over a longer term. If you need advice, there are hundreds of debt counseling agencies in Britain today that will help you overcome your financial problems, and many of them are voluntary. However, this is worst case scenario. In the main, secured loans provide a cheap and easy way to take out a sizable loan and can be easily and comfortably repaid if properly considered.

If, after careful consideration, you've decided that a secured loan is the right option for you, let us help you find the best secured loan deal available. Take just a moment to fill out our simple questionnaire, and one of SimplyFinance's representatives will contact you shortly to introduce you to a lender that will work with you to find the best secured loan deal. It's quick, simple, and you're under no obligation to us or to the lender we introduce you to.