Secured Loans: A quick guide
What is a secured loan?
A secured loan is money that you borrow from a lender on an agreed term for an amount you repay each month. When taking out your secured loan, you will sign a credit agreement which confirms the amount you are borrowing, the amount of repayments, the interest that you will be charged and the full repayment amount.
Typically there are two different types of secured loan you can take out, a fixed rate loan or a variable rate loan.
The difference between the two is the rate of interest that is applied to the loan. A fixed rate means a set repayment amount for some if not all of the loan term, allowing you to budget to make the same repayment every month. A variable rate has an interest rate which changes dependant on the market and Bank of England base rate. This type of loan is more risky as your repayments can fluctuate up and down. Because generally the terms are longer for secured loans you can opt to have a short term fixed rate which you will have for an agreed amount of time before going back onto a variable rate.
What is the difference between secured loan and unsecured loan?
Banks and lenders are sometimes more willing to grant you a loan if the loan is secured by one of your financial assets, usually your car or your home, this is called a secured loan. Ultimately you borrow an amount of money and use your home or car as security, but you ultimately put your assets at risk if you fail to make the repayments. Typically with a secured loan, the amount you can borrow ranges between £3000 to £50000, however there are lenders who can offer more and the interest rates are generally lower. With an unsecured loan the amount you can borrow is significantly less.
An unsecured loan is one that is not risking your financial assets but a loan that is based on a number of factors including how much you earn and your monthly outgoings. They are available for a range of different amounts and length of repayment terms and you can typically borrow up to £25000 on an unsecured loan.
Fees, Credit Score & Eligibility
There are certain factors that can impact your eligibility to have a loan, these are your age, your income, your residence and your credit rating. If you are between the ages of 21-65, have a steady income, have lived in the UK for at least 3 years and have a good credit rating, your chances of having a loan approved are higher than those who do not match this criteria.
As well as the interest that banks and lenders apply, there may be other fees that you could be subject too. These could include early repayment fees, arrangement fees, and a charge for same day transfer, you may also be subject to an extra charge if you were to defer your payments for a period of time or have what is known as a “payment holiday”.
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Comparing Secured Loans
When looking for your secured loan, the APR is one of the primary considerations as it effects how much you will pay in interest during the term. Using comparethemarket.com enables you to compare some of the markets leading providers to bring you competitive rates available on the market today.
Important things to remember
Make sure you shop around for the best interest rates! It could save you hundreds even thousands of pounds over your repayment term dependant on the amount you borrow.
Do not make too many applications if you have not yet decided the amount you want to borrow and for how long, everytime you apply for a loan it can impact your credit rating.
Finally
Make sure you only borrow what you need and what you can afford to repay each month. Think very carefully before committing to a loan and explore other avenues like cost cutting or re-mortgaging if you need to borrow a large amount.