A secured loan is the general term for a loan. This type of loan is secured as the Borrower pledges assets for example property, such as a home or an asset of equal value. This depends on the loan sum and whether the Lender accepts assets other than property to secure a loan.
The asset acts as security or collateral to the Lender for the funds being borrowed, in the event that the Borrower defaults on the loan, the Lender is then at liberty to take full possession of the asset. Once the Lender takes possession of the asset, s/he may then sell the asset to recuperate the funds lent to the borrower.
A loan secured with an asset, can mean that the borrower may borrow as much as one hundred twenty five percent (125%) of the value of asset/property subject to the loan term which can range from three (3) to thirty (30) years. As the lender is securing the loan against an asset, the loan can – all things being equal – provide a cheaper and longer term finance solution than an unsecured loan.
There are several types of secured loans however, a less traditional method of lending – one that is generally only available at a bank or building society or credit union – is the savings secured loan. This type of loan means that the borrower must have a savings account with the Lender. A portion of the money in this account is then used as collateral to secure a loan equal to the amount pledged. This money is then frozen in the account although it continues to earn interest. As the loan is repaid the secured portion of the savings account is freed. This has advantages for both the Lender and the Borrower. If the borrower defaults on the loan the collateral is already in the Lender’s possession and is therefore very low risk. As a result, the Lender may offer a lower interest rate. The disadvantage of this type of loan is that it is limited to the available funds in the savings account.
Personal secured loans have a range of distinct benefits over other types of borrowing. Because of the lower risk to the loan provider, they pass on reduced interest rates to borrower.
However, they’ve got more to offer than just attractive Annual Percentage Rates. Today personal secured loans come with all sorts of flexible repayment terms that will make it easier for you to repay, so it’s important to read the small print.
Clauses to keep an eye out for include: ‘payment holidays’ whereby you can halt repayments for an agreed period of time, and favourable redemption charges – so you won’t be penalised if you want to pay the loan back early.
As a homeowner, you start out with an advantage, namely, the equity on your home. No matter what the purpose of your loan, as a homeowner, you enjoy low rates because your property is offered as collateral.
You could use your personal secured loan funds to make home improvements that would drastically improve the value of your property. Or you could use it to buy a new car or even for a vacation; there is no restriction on the purpose of your loan.
A personal secured loan is the perfect way to borrow between £5,000 and £75,000 at a low rate. Obviously the better your credit history and individual circumstances will affect the rate which is offered to you.
Personal secured loans can be spread over a much greater time frame than unsecured loans. This gives them greater flexibility. Loans secured on property can be repaid over a period of between 5 years and 25 years.
The application process is a lot longer with personal secured loans than with unsecured loans, due to the fact that your loan provider will need to value your home.
The primary advantages of a personal secured loan are that:
They offer lower interest rates. Because the loan is secured and the lender is guaranteed to recover their money in almost any circumstance the APR (the interest rate) tends to be less than with an unsecured loan.
The circumstances in which one is able to secure a loan on property are more dependent upon the equity in the property rather than past credit history and hence individuals with adverse credit histories (such as County Court Judgements and credit card defaults) are not excluded from secured lending.
A personal secured loan represents an efficient debt management tool because it is possible to spread payments to a term of up to 25 years, it is therefore possible to consolidate any existing borrowing and reduce the monthly outgoings to such an extent that considerable extra income is made available to the household budget.
The majority of personal secured loans can be arranged without fees therefore the personal secured loan often represents a cheaper lending option than a remortgage due to the fees usually associated with the remortgage product.
They are easier to be approved for. In a typical personal secured loan, the home is used as collateral against the loan, meaning that should you be unable to maintain the loan repayments, your home will be at risk.
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