Secured Loans

How secured loans work...

With property value at an all time high there has never been a better time to release some of the equity in your home; a secured loan could be just the ticket for anyone wanting an 'any purpose loan'.

Equity in brief . . .

Equity is the amount of money tied up in your property that belongs to you. i.e the current market value of your property minus any outstanding mortgage or finance secured against it.

If we took a graph of property prices over the years it would show various troughs and peaks through time, but most importantly, the overall trend of the graph would show a continuous rise. This means that the vast majority of homeowners today will have some equity in their property.

Even if you purchased your first property a year ago with a 100% mortgage you will more than likely have a few thousand pounds of equity to play with, probably more. If, however, you have a property worth £300,000 in today's market, that you bought 20 years ago at £50,000 and have only £10,000 outstanding mortgage, then you have a hell of a lot of equity to play with. £290,000 to be exact!

What's the catch?

From reading the previous few paragraphs you could be forgiven for thinking that a bank manager is the author of this article, as it sounds too good to be true. There is of course a catch, but only if you allow yourself to get caught! If you are conscientious enough to ensure that you always make your payments on time, then these loans can be a fantastic option!

With an unsecured loan you will be subject to credit checks, making it difficult to obtain a loan if you have a poor financial history, not to mention the fact that you will be able to borrow much less than a secured loan. However, if you fail to make the payments on an unsecured loan, the lender will have a very hard and long time to actually take your property, whereas with a secured loan if you fail to pay you will legally lose ownership of your home.

Home repossession is thankfully the last resort that a lender will want to take, and as we said, these loans can be great news if you are sensible and take a few factors into consideration.

• How much do I need to borrow (not want)
• How much can I afford to repay (you may have £150,000 equity, but paying that sum back, even over 25 years is likely to be a struggle)
• Can I still afford the repayments if the rates go up? (Secured loans are not set at fixed interest rates, instead they fluctuate inline with the Bank of England's base rate)

As there is more at stake than there is with an unsecured loan these loans are made to look even more attractive to entice people in.

As well as good interest rates, long payment options and the fact that you can borrow lots of money, they also have added perks such as:

• Online application
  No need to take time out of your schedule and make meetings with the bank. Most companies have encrypted online banking, meaning that it's one quick form in your lunch break and wait for a call.


• Deferred payment options
  Some lenders will allow you to put your payments on hold for the first few months after agreeing your loan. This can give you some vital leeway to get your finances in order before you start the process.


• Poor credit history?
  As the risk to the lender is greatly reduced due to the fact that they have your property as a warranty, they are more willing to lend to people who have poor credit.

Compare secured loans