What is a secured loan?
When we talk about a secured loan, we are essentially referring to a type of loan secured against an asset (it can be your home, car, jewellery or anything that is valuable). This type of loan is especially instrumental for individuals with a poor credit score and who cannot get a loan from high street banks without collateral.
Who qualifies for a secured loan?
Basically, any person who is a citizen of the UK, has an asset that they can pledge as collateral, resides within the UK, earns a regular income and is an adult of sound mind qualifies to apply for a secured loan. In fact, the aforementioned are the basic requirements.
What is the maximum amount of money I can borrow under a secured loan?
The maximum amount you can borrow under a secured loan is dependent on the value of your collateral, your income and your ability to repay the loan on a monthly basis. In other words, even if you’ve put your home as collateral and therefore qualify to go for a loan of a million pounds, the lender might deny you if your income is not sufficient to meet monthly payments.
When should you consider going for a secured loan?
The best time to go for a secured loan is when you are grappling with credit problems and therefore cannot avail an unsecured loan. Secondly, secured loans are better if you are seeking to borrow a considerable amount of money for a prolonged period of time. With collateral, most lenders feel that the risks on their side are mitigated and therefore would not hesitate to approve your application.
Are there penalties for repaying a secured loan early?
In most cases, lenders encourage borrowers to repay their loans early. However, not all encourage this and there are a few lenders that might actually penalise you for clearing the loan earlier than agreed. It is therefore important to check with your lender in advance and get a clear picture as to whether early repayments attract a penalty.
How long do I need to repay the loan?
Actually, the loan repayment period is informed by the amount of money you’ve borrowed, how long you’ve borrowed it for and the interest rate attached to the loan. The higher the amount of money borrowed, the longer it will take for you to repay the loan and vice versa.
Are interest rates for secured loans as high as for unsecured loans?
No. The reason why unsecured loans have high interest rates is because of the uncertainty and high risks on the side of the lender should the loan be defaulted. In fact, the main reason why lenders charge high interest rates for unsecured loans is because there is no fall back asset should things go awry. The same cannot be said of secured loans where the lender can auction the security and use the proceeds to recoup their money. As such, secured loans tend to have relatively low interest rates as compared to unsecured loans.
What can I use a secured loan for?
Basically, you can use the loan for anything you want. This could be to start a business, to inject more cash into an existing business, to buy furniture, to buy a new car, debt consolidation just to mention but a few. It is however important that you use the amount advanced wisely.
What happens in the unlikely event that I can’t repay the loan?
If you are facing financial problems, it is always important to approach your lender and work out a new repayment plan. However, you need to note that in the event you can’t repay your loan, you stand the chance of losing the asset you pledged as security. This is because the lenders will always dispose of the asset to recoup their money.