Secured loans
Secured loans are popular for funding major home improvement projects or consolidating debts.
- How do homeowner secured loans work?
To qualify for a homeowner secured loan, you must have a first charge mortgage on your home.
The amount you can borrow is tied to the available equity you have in your home. For example, if your house is valued at £500,000 and you have an outstanding first charge mortgage balance of £200,000 then your equity is £300,000. This equity, plus your income, credit rating, and ability to pay back the loan will determine how much a lender will let you borrow.
You can apply for a secured loan either through an intermediary or directly with some lenders, such as Pepper Money.
- Potential advantages of a secured loan
- You can borrow larger amounts than you can through a personal unsecured loan
- You can borrow over a longer period than a personal loan
- The interest rate and monthly payments may be lower than if you borrowed a similar amount through a personal loan
- It’s often easier to qualify for a secured loan. This is especially true if you have a less than perfect credit rating or an unusual source of income
If you don’t want to lose your current mortgage deal, taking out a second secured loan may be a better option than re-mortgaging. For example, you may have a great rate or interest–only mortgage.
- What to consider before applying for a secured loan
Financing major home improvements. For example, adding an extension to your property
- Your property or asset is at risk if you fail to keep up with your payments
- Although interest rates on a secured loan are often lower you may end be paying over a longer–term. This means your total cost of repayment could end up higher than a personal loan
- Some lenders may charge hefty early repayment fees or charges
- Secured loans for debt consolidation
A secured loan could be a good option for consolidating debts if you:
- Owe a large amount and want to combine it into one monthly payment
- Need to reduce your monthly payment amount
You should always take advice on the best way to consolidate your debts. There are other options available for smaller amounts. For example, a 0% interest credit card or a personal loan may be more suitable.
- Secured loans for self–employed
Borrowing money when you’re self-employed can prove tricky. However, this isn’t necessarily the case when applying for a secured loan.
Because the loan is secured against a property, most lenders are comfortable lending to self-employed applicants providing their income can be verified.
Typically, the lender will ask for an accountant’s certificate, SA302s, income tax assessments or the last two years’ accounts confirming income.
