A secured loan is when the cash you borrow is secured against something belonging to you of great value. Usually this is your house. When you buy a home, a mortgage will be money given to you upfront, so you can buy it outright from the previous owner or council. You then pay the mortgage lender back (with interest) and any failure to pay or make regular pre-agreed payments can result in repossession of your home. In other words, your security on the loan is your house, therefore, default on the payments and you can lose your home.
So here we have some interesting facts about secured loans, the following infographic from LendingExpert.co.uk is also very good:
Not all people can qualify for a secured loan. If your name is not on the property deeds then it’s unlikely you will able to get a homeowner loan. The same applies to those who are renting.
Do You Have Enough Free Equity?
Let’s say you already have a mortgage, then you will have to have enough equity remaining to qualify for a second secured loan. Remember equity is the amount of your home’s value that has no borrowing against it. So, if you borrowed £100,000 and your home is worth £145,000 your equity is £45,000.
Are You Earning Enough?
A steady income is imperative if you want a secured loan. It is worth noting that anyone borrowing large amounts of money (usually enough to buy a house) will not get an unsecured loan from a responsible lender.
Advantages and Disadvantages
There are always pros and cons and the positive features of a secured loan can include getting the loan approved if you have a credit check that turns out to be less than perfect. You can also have a secured loan spread over a very long period (many mortgages can last up to 25 years) and it is a lot easier to qualify than unsecured lending.
The disadvantages are clear: your home is at risk if you default on repayments, you may end up paying more than double the interest charged by the best market-winning lenders and the very best interest rates are kept to one side and reserved for those with only the very highest credit score.
It is unlikely you will get a large secured loan if you are over 60 or if the term of your loan would continue beyond your 70th birthday. Many secured loan lenders impose an upper age limit which you can check by contacting each individual lender.