If you want to get a loan quickly without facing all of the usual hassles, secured loans are the way to go. You may even get a better interest rate, as your property is used to secure the loan. This gives the lenders some sense that it won’t be a total loss if you default on the loan. In turn, they are more readily inclined to grant you a loan at a fair interest rate.
What Does It Mean to Secure a Loan?
Securing the loan simply means that the property used to secure the loan is collateral. If you don’t make your payments, the property put up as collateral to secure the loan will become the property of the lender.
In the vast majority of cases, your home is the property used as collateral. For purchase loans, such as cars, the item purchased with the loan may be the collateral for the loan.
It is possible to use property as collateral for more than one loan. A second mortgage is a common example of this. For loans that are not for purchasing a specific item and loans that are not for a small business, the bank need not know how you intend to use the money. For example, you may use a second mortgage to consolidate your debt, make home improvements, buy a car, or take a vacation.
The Impact of Your Credit Score
An agency that tracks and computes your credit score will be used in part to determine your loan eligibility. You may wish to check your credit score before applying for a loan to make sure everything is in order. If your credit score is mediocre, a secured loan may be the only type of loan for which you qualify.
This is a big part of the advantage of getting a secured loan in the UK. While having a good credit score will always get you a better loan, you may still qualify for a good loan if you have plenty of equity in the property being used as collateral. While lenders don’t just give out a loan to anyone who wants one anymore, there are still loans available for those with the right collateral.
Getting the Right Repayment Terms
As alluded to previously, you should get lower interest rates on a secured loan. However, you should also get more friendly repayment terms. For example, if you need to make smaller payments or have adjustable payments over a period, you may be able to work that into the secured loan terms. You’re unlikely to get those concessions on an unsecured loan.
The types of terms you get will mostly come down to the value of your collateral. If you have paid off or nearly paid off all of the debt secured against your home, and you want to use your home as collateral, you should get great terms.
The value of the percentage of your home you own is what we refer to as equity. Your home equity goes up when you pay off the loan principle, but it can also fluctuate a great deal based on fluctuations in the market value of your home.
When the property market drops, your home equity can decrease even if you’re keeping up with your payments. This may hamper the quality of the secured loan terms you can get when using your home as collateral, but you should still be able to get a secured loan as long as you owe less than the current market value of your home.