Secured Loan Guide

What is a secured loan?

A secured loan is when you borrow a sum of money that is secured against an asset that you own.

It is similar to when going to a pawn shop. You hand over a jewellery item, the pawn shop lends you some money i.e. a loan. Once you pay the loan back, your jewellery item is returned back to you. If you don’t pay back the loan, they will keep the jewellery. Therefore they keep the jewellery as collateral.

Typically collateral items are houses, apartments and cars. Therefore when you apply for a home secured loan, the form will normally ask details about the home you own as this will be used as collateral. So if you decide for whatever reason not to pay the loan, the lenders in theory could sell you home in order for them to get their loan back.

Because it is less risky for the lenders, secured loans have usually better rates then non secured loans. So for you its better rates, but it is important to know why you are getting a better rate.

If you are not a homeowner, then you would have to apply for a personal loan.

Reasons for applying for a Secured Loan

There are many reasons why one would need a secured loan. As explained above, secured loans usually provide better rates then non-secured loans.

Typical reasons for applying for secured loans:

Home Improvement Projects

This could be anything to do with simply decorative projects to home extensions or attic conversions. The fantastic idea on home improvement projects is that they usually increase the value of the house. Sometime the value increase is greater then the amount borrowed, which is an ideal situation.

Debt Consolidation

This is usually for those who have a number of debts spread amongst many lenders. Sometimes these debts are non-secured, therefore the rate of interest is much higher then a secured debt consolidation loan. It makes sense to obtain a secured debt consolidation loan to pay back existing lenders and then just make one payment per month at a much lower rate.

Where do I apply for a secured a loan?

You can apply for a secured loan in all high street banks and building societies. You could also for high street brokers. They will provide you with a list of secured loan products you could go for and that are suitable for you.

Here are some things that you should be aware off:

Independent or Non Independent

Independent brokers are not tied to any lenders, where as non-independent ones are. It’s like when you want to buy a car. A Ford dealer will only show you Ford models and not VW. They are non-independent. Whereas another sales show may show you various makes, such as Honda, BMW, VW, Ford etc. By going to an independent broker, your secured loan products choices are much greater. And you can choose what it most suited to you.

Secured loans - What to look out for

You would want to look for the cheapest secured loan. But that does not mean that the lowest interest rate is the better option. There are other factors to consider before you decide. How important these factors are will vary from person to person. Here are some of them:

- If you decide to pay back you loan earlier then agreed will you face a penalty?

- Are there any additional fees to consider such as valuation and arrangement fees

- Will the interest rate charged or APR, be fixed or is it variable. What is the variable rate based on?

- If you apply for a secured loan, do you have to pay a fee? Are you obliged in any way?