Demand for secured loans has risen strongly since 2015
Demand has been growing by more than 15% per year. Sales figures for 2019/2020 are:
- 30,000 new agreements per year
- £1,300 million of new agreements by value per year
Why are secured loans rising in popularity?
- borrowers trust the product, thanks to stricter regulation by the Financial Conduct Authority
- finance brokers view secured loans as a sensible alternative to remortgaging because…
- borrowers can retain their first mortgage if on good terms and avoid paying early redemption fees
- product innovation offers excellent borrowing options
- increased competition has pushed down interest rates
- very low frequency of repossessions – only 98 in 2019 or 0.06% of outstanding loans – suggests lenders are committed to helping borrowers in financial difficulty
Features of Secured Loans
If you are a homeowner with an existing mortgage, you can apply for a secured loan called a “second mortgage”. The only difference is that a secured loan ranks after your first mortgage for collateral. Loans can be for any purpose but are normally used for home improvements or debt consolidation. Interest rates are normally variable but some lenders, such as StarLoans, offer fixed interest rates to give borrowers great certainty.
A Secured Loan has many advantages over unsecured debt. You can borrow:
1. larger sums
2. over longer periods
3. at lower interest rates
4. even if you have a poor credit rating
How to apply for a Secured Loan
You can apply through a finance broker or direct with the lender.
If you apply through a finance broker you should benefit from whole of market advice. The finance broker will charge a Broker Fee, which can be 10% of the sum borrowed. In fact, there is no limit to how much finance brokers can charge so the Broker Fee can be even more than 10%!
If you apply directly to the lender, you will cut out the middleman and not pay broker fees. StarLoans is a Direct Lender and aims to offer both a superior service and good value. This application route could save you money!
Secured Loans are typically in the range of £5,000 to £50,000 but can be as high as £100,000. At StarLoans we start at only £3,000 because our costs are lower. Our online application form is quick and easy and guarantees a fast response. Your details will never be shared with anyone else.
Home improvements such as a new bathroom or double glazing need not cost the earth but can pay enormous dividends in terms of home comfort and enhanced property value. You are simply using the free equity in your property as collateral.
If a homeowner has expensive short term debt with high monthly repayments, refinancing at a lower interest rate can make sense – this is known as debt consolidation. Remember that borrowing over a longer time period will push up your costs.
Secured Loans are not designed for Equity Release
Secured Loans can provide liquidity to people who are “asset rich” but “cash poor”. But they should not be confused with “equity release.” If you take out a secured loan your payments will consist of capital and interest because you have borrowed to finance a particular purchase or for debt consolidation where there is an end in sight. For “interest release” payments are “interest only” to boost your income and the capital is only repaid on death.
What if I have a poor credit score?
If you are a homeowner, you may still be offered a Secured Loan because the lender has security to protect him from loss. Borrowers with poor credit scores can therefore obtain Secured Loans but:
1. you may need to show relatively more free equity in your home to support your application
2. you may have to pay a higher interest rate