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Everything You Need To Know About Secured Loans

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When it comes to financial planning the more you know, the less likely you are to run into difficulties in the future. It’s important that you’re aware of just how many different types of loans there are, no two are the same, the interest rates your lender is offering and how long you have to pay it off. If you’re looking to borrow a substantial sum, wish to improve your home or invest in a new business a secured loan could be the best option for you. But before you sign the paperwork there are a couple of things that you need to consider. Although secured loans are safer than unsecured ones, where you have no collateral, if you fall behind on payments or default on the original agreement it could severely impact your finances, personal life and even where you live. 

Secured Loans

Do I Need One?

A secured loan, or second mortgage means using your home as collateral in order to borrow a significant amount of money, often well over $25,000, to do with as you wish. Many people who take out a secured loan choose to use the extra money to improve their home either on decoration inside or structural repairs or enhancements outside. Others look to use the loan to consolidate existing debt, purchase a new car, or renovate a holiday property and even to cover startup costs in a new business. Secured, or second charge loans are also an excellent option for people with poor, or patchy credit scores who have been turned down, or are finding it difficult to obtain an unsecured personal loan. Usually, the loan amount offered ranges between $5,000 and $150,000 depending on your requirements and how much your home is worth. 

Are All Loans The Same?

Not at all. In fact, every loan is different because it is designed around someone’s circumstances, how much they can afford to pay and what they are asking to borrow. Even the fixed monthly payment amount will vary depending on how much you choose to borrow. Remember, the loan will also depend on your credit score, to a lesser amount, how much you earn, what financial commitments you already have such as student loan, credit card debt or a loan with another company. It is also worth considering how much equity your property has available as obviously a house already in negative equity is more of a financial risk. 

How Do They Work?

The lender will offer you a certain amount based on a number of factors, some of which we’ve mentioned above and how much your property is worth. If your application is successful you will then pay a fixed monthly payment, bear in mind the higher the loan the higher the interest rate but you will have been able to borrow a substantial amount of money. You should also be able to arrange an easy payment plan, keep your current mortgage rate low as well avoid any exit fees if you choose your lender wisely. 

Make sure that when you’re looking for a good secured loan that you shop around as there are plenty of providers, some will be able to offer you a better deal than others as well as you making sure that you choose the right lender for you. For example say you wished to borrow a smaller amount, $30,000 over 120 months, in return you’ll pay a broker fee and lender fee, yes some providers charge, then you have the pre-calculated monthly payments plus the interest rate and the Annual Percentage Rate of Charge. Overall, if utilised correctly, it’s a quick, reliable and, if your finances are healthy, relatively risk-free way of obtaining money.

What If I Can’t Pay?

There is the one major disadvantage to a secured loan, and that’s having to put your property, or other significant asset on the line in order to receive the monies. Think very carefully about your current financial health, your job security and any outgoings and incomings because no matter which institution you choose this is a certainty. If you cannot keep up with the payments, miss one for whatever reason or aren’t vigilant that payments are leaving your account on time your home, or other property will be at risk of being repossessed. Not only that but if you have used the loan to consolidate any existing debt you could also be charged for extending those existing terms, this means that by declaring the secured loan you may also be asked to make higher monthly repayments with whomever you’re currently in debt.