A secured loan can be described as a loan where a borrower pledges some collateral or asset (such as property or a car) as the collateral for the borrowed loan(s), which then becomes the secured debt that’s owed to the lender who gives the loan. This debt is hence secured against that collateral. In case the borrower defaults, a creditor can take possession of the pledged asset which has been used as the collateral and might sell the asset to regain all or some of the cash that was loaned to a borrower; For instance, foreclosure of a property or home. From a creditor’s point of view, a secured loan is in the debt category where a lender gets granted portion of the rights to the specified property. In case the sale of the given collateral doesn’t raise enough funds to fully pay off the owed debt, a creditor can obtain the deficiency judgment against a borrower for the amount that remains.
The opposite of a secured loan is an unsecured loan, which isn’t connected to any particular piece of property or asset; instead, a creditor might only satisfy the loan against the actual borrower instead of a borrower’s collateral. Basically, secured loans usually attract much lower interest rate as compared to the unsecured loans because of the added security they give the lender. That being said, expected returns, ability to pay and credit history, are also factors that affect the interest rates.
A secured loan is usually used to borrow the large amounts of money, basically over £10,000 though one can borrow less, say like £3,000. The term secured typically refers to fact that the lender needs something as a security just in case the borrower cannot be able to pay the debt back. A secured loan is less riskier for lenders, and that’s why it is normally cheaper as compared to the unsecured loans. However, the loan can be much more riskier for you as the borrower since the loan provider or lender can repossess your property or home if you don’t adhere to the repayments terms.
Purposes For Secured Loans
First, is to extend the loan via securing the debt. A creditor get’s relieved of the financial risks that are involved since it allows a creditor to actually take your home or other property in case the loan isn’t repaid properly. In exchange, this will permit the other purpose where a debtor may receive a loan on much more favorable terms as compared to the terms available for unsecured loans, or/and to be extended the credit under circumstances where credit under the terms of unsecured loan wouldn’t be extended. With a secured loan, a creditor might offer the loan with more attractive interest rates and better repayment periods.
Benefits of a Secured Loan
-It is much easier to obtain. An unsecured loan is usually cheaper for people who have decent credit scores, however, a secured loan provides the lenders with security, so they are much more willing to lend money to those with poor credit scores.
-Big borrowing is always possible. Normally, the maximum amount of an unsecured loan is usually £35,000 but a secured loan can be up to £75,000
(Source: Lending Expert @ https://www.lendingexpert.co.uk/loans/secured/)
-You can borrowing over an extended period of time. A secured lender prefers the loan to last much longer so as to help in offsetting hefty set up costs, normally from 3 to 20 years.
The unsecured lending is normally between 1 to 7 years. Borrowing a loan for longer reduces the monthly repayments, though it substantially increases the actual total amount of interest repaid.
Types Of Secured Loans
-Mortgage loans are secured loans where the collateral is your home.
-Non-recourse loans are secured loans where collateral is the actual claim or the only security the creditor(s) has against the borrower(s), and the creditor(s) doesn’t have any recourse whatsoever, against the borrower(s) for any deficiency that remains after the foreclosure against the given property.
-A foreclosure is basically a legal process where the mortgaged property gets sold so as to pay the loan of a defaulting borrower.
-A repossession is basically the process where property, such as your vehicle, gets taken by a creditor when a borrower doesn’t make payments that are due on the given property.
Other Types of Secured Loans Explained Simply
1st and 2nd charge mortgages: A debt consolidation loan that is secured on a home may be 1st or 2nd charge. If it is a 1st charge mortgage, it basically means you have taken out the loan for a home improvement, for instance, when you don’t have any existing mortgage. While a 2nd charge mortgage basically involves setting up some new agreement with the existing mortgage lender, or simply going to another different lender. This means that you can get further advance on the mortgage; where you borrow some additional amount of cash against your property from your already existing mortgage lender.
How You Can Get the Very Best Deal When Taking a Secured Loan
-If you have opted to take a secured loan, then your very first step should be approaching a mortgage lender and finding out exactly what they are offering.
Some may offer some special deals to the borrowers who already have a good credit history and record when it comes to repaying their mortgage.
-Next, you should check various comparison sites to find out whether you can be able to get a much better deal with a different lender. However, keep in mind that the comparison sites don’t always offer a full and comprehensive selection of the best deals in the market.
Along with keenly researching the actual cost of borrowing, make sure you compare all the fees and also the terms and conditions for each loan, and what might happen in case you’re unable to repay.
-When you are comparing lots of different deals on the comparison website, check if it’ll actually show up on the credit file.
Certain lenders may carry out a complete credit check and credit history on you after you get the quote for a requested loan amount, so that it looks like you have already applied for that loan. In case this happens a lot of times, it might harm your overall credit rating.