In this blog post, we’ll look at what a secured loan is, why you might want one, what the benefits and risks are, and finally, how you can get one.
1. What is a secured loan?
Before we start, let’s clear something up: Secured loans, homeowner loans, second charge loans, and second charge mortgages…are all the same thing. They’re just different names to describe the same products.
Now we’ve got that out of the way, let’s continue…
A secured loan is a loan that is secured against an asset – in this case, your home.
Securing the loan against your property provides the lender with some reassurance that they’ll get their money back in the event that something goes wrong.
You can only have a secured loan if you own a property – which is why they’re called homeowner loans. Secured loans are often taken out alongside an existing mortgage – which is why they’re called second charge loans or second charge mortgages.
Secured loans work like any other loan – you borrow an agreed amount of money, over an agreed amount of time, and make monthly repayments to the lender until the loan is paid in full.
2. Why would you want a secured loan?
Some of the reasons to take out a secured loan include:
- To pay for home improvements, such as fitting a new kitchen, building an extension, converting the attic into an extra bedroom, or completing top-to-bottom home renovations.
- For debt consolidation – to pay off credit cards, personal loans, store cards or mail order accounts, reducing your outgoings and saving money.
- To pay for a special event – like a wedding or once-in-a-lifetime holiday.
- To gift money to loved ones – such as giving a house deposit to your children.
- To pay off tax bills, arrears, or charges, or to settle County Court Judgements.
3. What are the benefits of a secured loan?
Larger loans:
You can typically borrow more money with a secured loan – that’s because the lender can afford to take a bit more risk, knowing that the loan has been secured against your home. Secured loans start at £5,000 and you could borrow up to £500,000 depending on your circumstances and the available equity in your home.
Low rates:
Rates for secured loans start at as little as 2.9% – that’s cheaper than most personal loans, and much cheaper than the average credit card, which generally start at around 18% and can go as high as 39%. Low secured loan rates mean that you save money.
A term that suits your budget:
The term of a secured loan – that’s the number of years you have to pay it back – can be arranged for anything from 2 to 30 years, depending on your circumstances, preferences and life goals.
Generally speaking, the longer the term, the cheaper your monthly payment will be – so with a secured loan you can adjust the term to meet your budget and spread the payments more comfortably.
Most personal loans last for a maximum of 5 years – which means that your monthly payments are higher, because you’re paying back the loan over a shorter period of time.
A definite end date:
Because you agree the term of the loan at the start, you know for certain when the loan will come to an end (providing you keep up with your agreed payments).
Many secured loans allow you to make regular overpayments or lump sum payments without penalty, which means you can pay it off even quicker if you want.
No need to re-mortgage to get extra funds:
You might have a great deal with your current mortgage provider and not want to swap, or you might not want to re-mortgage because of expensive exit charges.
A secured loan can run alongside your existing mortgage, meaning that you can leave it in place while still receiving the funds you need.
4. What are the risks of a secured loan?
The loan is secured against your property, so your home could be at risk if you fail to keep up with the repayments.
Although having a longer loan term will mean that your monthly payments are lower, it can also mean that you pay back more interest overall.
You should always get advice from a qualified professional before taking out a secured loan, to make sure it’s the right thing for you. Contact a finance broker like Dragon Finance. They will take the time to understand each client and their individual circumstances.
5. How can you get a secured loan?
Dragon Finance will carry out a soft credit search – which won’t show on your credit file. Once you’ve been approved, one of their expert advisers will be in touch to discuss your needs and make sure you get the right advice – and the money you need.
