Advantages of Secured Loans
A Secured Loan has the following advantages over unsecured debt, such as credit cards or personal loans:
1. you can borrow larger sums: £3,000 to £100,000 for home improvements or any other purpose
2. you can borrow over longer time periods: 3 years to 25 years like your first mortgage
3. you can borrow at lower interest rates: from 5%, depending on your personal circumstances, which may be useful for debt consolidation
4. you can borrow even if you have a poor credit rating: lenders have a second charge mortgage as security and regular repayments will improve your credit score
5. The market for secured loans is well developed: good availability from lenders distributing through credit brokers plus a tiny number of direct lenders
6. Lenders have regulatory requirements to lend responsibly, treat customers fairly and show forbearance if borrowers encounter genuine payment difficulties. Repossession of a borrower’s home must be the lender’s last resort and happens infrequently in the Second Charge Mortgage market.
Secured Loans are suitable for many purposes
A secured loan is a suitable product for many homeowners providing you are confident about placing your home at risk. For example, take a homeowner with a property value of £200,000 and a first mortgage of £100,000. This homeowner may borrow £25,000 against £100,000 of equity so long as the homeowner has sustainable income to make repayments.
When a homeowner applies for a secured loan the lender will check that it is both suitable and affordable. Of course, not all secured loans are the same. At StarLoans our secured loans have the benefits of fixed interest rates, flexibility and low fees.
A Secured Loan can be used for home improvements such as a new bathroom or kitchen or double glazing. This should benefit your home comfort and enhance the property’s market value.
If a homeowner has expensive short term debt with unaffordable monthly repayments, refinancing at a lower interest rate can make sense – this is known as debt consolidation.
Remember if you lower your monthly repayments in return for a longer loan term, you will end up paying more in the long term.
Sensible alternative to remortgaging
Secured Loans can therefore provide liquidity to people who are “asset rich” but “cash poor”. For example, older homeowners may be living in valuable properties but with only small mortgages. Secured Loans can also be a sensible alternative to remortgaging, especially if the costs of doing so are high or the homeowner does not want to surrender an attractive mortgage deal.
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. A Secured Loan is just like a mortgage and is called a Second Charge Mortgage. 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