Unlike personal or unsecured loans, secured loans require you to put something up as collateral (a security against your defaulting on the repayments). This is most often your home or equity that has been built up in an investment property.
Whatever you use as security for a secured loan is at risk if you do not keep up repayments.
Typically, secured loans are for greater amounts than personal loans and can be for various things such as house renovations, home improvements or debt consolidation.
As with any loan, secured loans allow you to borrow a lump sum of money that you will then need to pay back with interest. What differentiates secured loans from other types of lending is that they require you to put up collateral (i.e. a security that can be claimed by the lender) against the loan. There are both fixed and variable rate loans available, so you should consider if you’d prefer repayment security or you’d rather take your chances on a lower rate that might go up in the future.
There is a complexity with Second charge mortgages that you may not find with other types of loans. That said, while the type of loan is complex, secured loan providers can afford to be a bit more lenient when it comes to the credit history of applicants, which is why people can sometimes use these loans to improve a bad credit rating.
Loan to value ratios play a big part when it comes to the loan amount available to you. Although this differs from company to company, secured loan lenders all have loan to value restrictions. They will take in to account the amount of any first charge borrowing (i.e. outstanding mortgage amount) and any potential borrowing you wish to take out with them, and ensure these combined values fall below their loan to value limits.
Secured loans are authorised and regulated by the Financial Conduct Authority, the UK’s financial regulator, so lenders will require you to show that you will be able to repay the money before they will lend to you.
• Borrowing larger sums is made easier, with relatively low interest and longer repayment terms.
• Poor credit scores will not necessarily exclude you from getting a secured loan, which can be used towards debt consolidation.
• Your home or other collateral will be at risk of repossession if you do not keep up the repayments on your secured loan.
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