There are many reasons to consider taking out a secured loan against an asset you own, especially if you need:
It’s an option that many people use to resolve a wide array of financial concerns, be it to reinvest into their home for small improvements like a new kitchen or bathroom to major renovations like a complete refit throughout, kitchen extension or extending the garden. They are also one of the most popular ways to consolidate debt, or use the funds to invest in a second property.
We look at 10 reasons why it may be helpful to consider taking out a secured loan.
If you apply for an unsecured loan, you may find that you are unable to borrow more than a maximum of £25,000. Whilst this may be enough for many circumstances, the repayment terms of up to 7 years, and high interest rates, may make budgeting tight.
When it comes to secured lending, some lenders could let you borrow from £5,000 up to £2 million, provided you can use an asset with the appropriate equity and affordability criteria is also met.
You may be able to borrow at least up to 100% loan to value when taking into consideration the open market value of your home and your outstanding mortgage balance.
This will of course depend on the lender and their lending criteria.
Compared to unsecured loans, it is often the case that a secured loan lender will be able to offer a much lower interest rate. This is because the risk involved for the lender is significantly reduced thanks to the collateral provided by the borrower.
Your personal circumstances, including your credit history, will determine the interest rate you are offered by a lender. We have a range of plans to suit applicants with a poor credit history. These plans maybe a little bit more expensive than those available if you have a good credit history, but many of them still offer very attractive interest rates.
Use our secured loan calculator to see how much a secured loan could cost you.
It’s often the case that if you are paying off multiple debts you will also be paying a variety of interest rates. And if you are close to your credit limits, a large portion of this could be considered to be ‘dead money’ that services interest rates before the debt itself.
Using a secured loan to consolidate your debts into a single monthly payment could make the payments more manageable. Instead of paying varying degrees of interest rates, there will only be one attached to the secured loan, so you always know where you stand.
If you apply for an unsecured loan or remortgage, your credit score will play a central role in determining the final outcome. If you have a clean credit history, then you will have many more options to choose from.
The difference with a secured loan is that lenders tend to be more flexible because you have provided collateral. So, instead of rejecting an application based purely on your credit score, they also place an emphasis on affordability.
Lenders will ask you to provide full details about any previous credit issues, and also show you can meet the financial obligations of the loan terms. Secured loans for bad credit typically come with higher interest rates compared to those offered to people with a good credit score, which can make them more expensive in the long run.
If you want to raise money quickly, but your mortgage has early repayment charges, a secured loan offers the option of borrowing money whilst keeping hold of your current mortgage.
Not only will you be able to avoid the early repayment charges due to your mortgage lender, but if you secure a low interest rate, it could even work out cheaper.
Part of the process of applying for a secured loan includes explaining why you want to borrow the money. Whilst unsecured lending has some restrictions on what you can use the money for, this is not the case with secured lending, as long as it is for a legal purpose.
For example, you could use an unsecured loan to settle outstanding tax bills, invest in a second property or pay for a one-off personal purchase. Most lenders are not too concerned about how you use the money, and mostly focus on your ability to keep up repayments.
A growing number of people are choosing to become self-employed, which can offer a host of personal and professional benefits. However, when it comes to getting a cash injection, it can create additional problems.
If you apply for a mortgage or unsecured loan, most lenders will not consider the application unless you have been self-employed for at least three years.
But applying for a secured loan could offer a better solution. Whilst you may still have to wait a little bit of time to access this type of lending, because you can offer personal assets as collateral, this gives lenders more reassurance, which allows your application to have a better chance of being accepted.
When you take out an unsecured loan, the lender will usually expect it to be repaid within 5-7 years. This, in addition to the fact that unsecured borrowing also tends to have higher interest rates and you will have less time to repay compared to a secured loan, means you will have to manage higher monthly repayments.
Taking out a secured loan can allow you to spread repayments over a much longer period. And if you are aged below 40, the repayment period could be as long as 25 years. This may mean the loan will cost more overall due as you’ll be paying interest for longer, but it could lower the monthly payments.
Not only are secured loans a viable option for the self-employed, but they can also be a helpful solution for business owners. With a secured loan you may be able to find better terms with lower interest rates compared to a business loan, even if you haven’t built up a strong credit profile.
A secured loan could be used to buy key assets for your company to support business expansion or to support payroll during lean times. And if you’re happy to accept the exit fees attached to the loan terms, you may even want to consider repaying it early if your business starts to take off.
Dealing with multiple unsecured debts can not only mean dealing with higher interest payments but it could also have a negative effect on your credit rating, which can make it difficult to secure lending in the future.
Your credit score is influenced by several factors, which can be improved by a second charge mortgage (which is another term for a secured loan).
Consolidating multiple unsecured debts into one repayment via a secured loan can help your credit score by ensuring there are fewer open credit contracts against your name.
Having multiple lines of credit also means juggling the various payment due dates, which can be difficult to manage. Even if you miss a single payment on a credit card, it can have a detrimental effect on your credit score for a long time. If you only have a single payment date to remember, you are far less likely to forget it.
Taking out a secured loan can offer a host of benefits, depending on your financial situation. Not only could you borrow more but you could secure a lower rate of interest. Whilst some people use a secured loan to consolidate their debts, as long as the funds are used for legal purposes, there are no limits on how you spend the money.
If you feel that a secured loan could benefit you, get in touch with our friendly team who will be more than happy to answer any questions you may have.
Last updated: 02 August 2024 | © KIS Bridging Loans 2024