Secured loans are a popular way for Brits to borrow large sums of money for everyday purposes including weddings, home renovations or even to consolidate existing debts.
Your loan is “secured” against something of value you own, usually your home or property, and you can borrow large amounts depending on your equity and the amount of property you own. It is important to note that your property is being used as collateral and could be repossessed by the lender if you cannot make your repayments.
Under the new covid lifestyle, there has reportedly been a 31% increase in applications for secured loans over the past year. As of March 2021, more than 2,000 applications were approved, worth just under Â£ 100million.
With covid still looming, a secured loan can be an effective way to finance any home renovation, including office space, loft conversion, or garden office.
The average loan amount is around Â£ 50,000, but for some borrowers it may be just a few thousand pounds, and others it could be north of Â£ 100,000 to make a huge change in lifestyle.
To make sure you have all the best information possible, we talk to David Beard, the founder of Lending Expert, who gives his advice on what to consider when applying for a secured loan.
Calculate how much you need to borrow
Beard: âThink about what your loan is for and exactly how much you need to borrow for it, whether it’s improving your home or buying a new car.
âSecured loan rates can be low, starting as low as 3.34% APR, but if you borrow too much and for too long, you only pay extra interest that you don’t need.
âTake a moment to calculate the costs, sit down and calculate what you really need and for how long. Can you supplement the rest with income or savings? “
Can you afford refunds?
Barbe: âBeing able to afford repayments is essential for this type of loan. Unlike an unsecured or personal loan, you borrow against your property or family home in this circumstance.
âIf you can’t keep up with long-term repayments and you’ve exhausted all other types of repayment arrangements or options, the lender could stop managing your property to cover their costs.
âAre you going to pay off your loan from future income, savings or inheritance? Making sure you can repay it is an important consideration.
Have you improved your credit score?
Beard: âHaving a good credit score could give you access to much lower rates and also increase your chances of getting approved.
âThere are a few quick steps you can take to improve your credit score. Start by getting a free trial from one of the major credit reference agencies or paying a small fee to access your credit report – as that will highlight any areas that you could improve.
âSome of the basics include getting on the voters list and shutting down any bank cards or credit cards you don’t use. This could offer a real boost and help you access a secured loan with a very competitive rate.
Are you planning to relocate or make other big purchases?
Barbe: âSecured loans are usually repaid over long terms, like 5, 10 or even 20 years. For some purchases, this can be a good way to spread the repayment, especially for debt consolidation.
âYou just want to make sure that you don’t have any other big purchases coming up in the near future, like a wedding, plans to move, or buying another property.
âCertainly, if you are planning to relocate, you may need to pay off your secured loan in advance, so it may be worth considering this and any other major expense. “
Is a secured or unsecured loan better?
Beard: âSecured loans are certainly effective for borrowing large amounts of Â£ 50,000 or Â£ 100,000, especially if you have valuable property and have built up solid equity in your home. With the possibility of repaying over 30 years, it is very flexible.
âUnsecured loans can be just as effective at borrowing up to Â£ 25,000, but it’s usually better if you have a good credit score as it will give you access to the highest loan amounts and lower rates. ‘lowest borrowing (from 3% APR), Plus you won’t have to worry about using your home as collateral.
If you are considering consolidating existing loans, you should know that you can extend the terms of the debt and increase the total amount you are repaying. Think carefully before securing other debts against your home.
Your home can be repossessed if you don’t pay off a loan or other secured debt.
For more information and to verify your eligibility for a secured loan, you can visit Lending Expert – or speak to an advisor today by calling 0161 820 8099.