Secured Personal Loans

Questions you could ask and answers you should know

What is it?

A secured loan is a personal loan whereby you use your home as security. The lender advances a sum of money and takes a legal charge over your property. If you fail to keep up your repayments, then your home is at risk.

What is the difference between a secured loan and an unsecured one?

As the name suggests, a secured loan requires you to put up your home as security. Unsecured loans require no such collateral. As your home is being used to secure the loan, a homeowner loan presents less risk to the loan company as they have the security of your property if you don't keep up your repayments.

In return, you will generally benefit from a lower interest rate on a secured loan than an unsecured one as the lender is taking less risk.

How much can I borrow?

The amount you can borrow depends on the equity in your home and your income and outgoings.

The equity in your home is the difference between the value of your property and the total amount of any outstanding mortgages and secured loans. The higher the level of equity, the more you can typically borrow.

In addition, a lender will have to be satisfied that you can afford your monthly repayments. Therefore the loan will also be based on your personal income and outgoings.

What can I use the money for?

You can use the money for practically any purpose. Many people choose to use their loans to pay for home improvements such as new kitchens and bathrooms or an extension or conservatory. Others use the cash to repay other debts such as personal loans or credit cards.

You can also use the money to pay for a new car, a holiday, a wedding or to buy a second home.

What interest rate will I pay?

Your interest rate will depend on a number of factors. Firstly, it will depend on the amount of equity you have in your home. Your interest rate will generally be higher if you are borrowing a large proportion of the value of your property.

Secondly, your interest rate will depend on your credit history. If you have a less than perfect credit record or if you have County Court Judgments (CCJs) or defaults then you may pay a higher interest rate on your loan.

In addition, your interest rate may also be affected by factors such as the value of your home and your income and outgoings.

What is an APR (Annual Percentage Rate)?

The APR is the percentage rate your loan will cost you each year, including both interest and fees. It is the standard calculation used by all secured lenders and it allows you to compare the various loans on offer.

An APR can either be fixed at a specific amount for the term of the loan or can vary from year to year. All lenders are obliged to tell you the APR before you agree to a loan. Generally speaking, the lower the rate the better it is for you.

What repayment period can I take the loan over?

You can typically take a secured loan over a term of 3-25 years. You can generally choose a loan term based on your age, your planned retirement age and the affordability of the monthly repayments.

Can I pay the loan off early?

Yes. However, you should check your loan terms and conditions before deciding to repay the loan early. Sometimes a charge will be made if you pay your loan off before the end of the term. This can be around 1-2 months interest, depending on the lender.

Generally speaking, you will pay a higher 'early repayment charge' in the first few months or years of the loan.

What information will I need to provide to be agreed for a secured personal loan?

A lender will want to know about your income and outgoings, the value of your property and your assets and liabilities.

A loan company will also want to undertake a credit check on you in order to determine how good you have been at maintaining credit commitments in the past.

Can I still get a secured loan if I have bad credit?

Yes. Many lenders are still happy to accept your application even if you have a less than perfect credit history.

So, if you have missed or late payments on loans or credit cards, mortgage arrears, County Court Judgments (CCJs) or defaults, you may still be eligible for a homeowner loan.

Bear in mind that you may pay a higher rate of interest on your loan if you have a poor credit rating.

I am self employed. Am I eligible for a secured personal loan?

Yes. One of the main advantages of secured loans is that they are available to self employed applicants. Whilst many mortgage and unsecured loan companies are reluctant to lend to you if you are self employed, secured loan providers are generally happy to accept your application.

You may have to show your income through accounts or tax returns although not all lenders require this.

Is there an age limit?

You have to be 18 or over to take out a loan. However, many lenders do not have an upper age limit for homeowner loans, meaning that many will consider your application even if you are retired now or the loan stretches into your retirement.

If you take a personal loan to the age of 65 or beyond, bear in mind that you will still have to pay your loan at a time when your income may fall substantially.

Can I use it to pay off other loans or credit that I have?

Yes. Many people it for this purpose.

If you have expensive unsecured credit such as personal loans, store cards or personal loans – or even if you have other secured loans at high interest rates – you can take out a secured personal loan to consolidate these other debts.

As well as potentially reducing the amount of interest that you pay, you may find that you also reduce the amount that you are paying to your debts every month. If you are in debt and you need more infromation or a debt consolidation loan visit indebt.co.uk.

In addition, one simple, affordable payment to a secured loan may be much easier than paying lots of smaller amounts to a number of different loan or credit card companies.

What happens if I need to borrow more money in the future?

You can take out a further loan or a brand new loan for a higher amount.

Some lenders will let you extend your loan to borrow additional funds (depending on the equity in your property and on your income). Alternatively, you can take out a brand new loan for a larger amount and repay the existing loan.

What happens if I can't keep up my payments?

If you think you will be late in making a repayment, you should contact your lender straight away as this may affect your credit rating. You may also incur charges.

If you have taken out insurance then this may cover you in the event of unemployment, accident or sickness (see later).

If you cannot make your repayments on a secured loan, whatever security you put up (in this case your home) could be repossessed by the lender. Your home is therefore at risk if you fail to make your repayments.

What happens if I sell my house?

If you sell your home and do not buy another property, the secured loan will have to be repaid on the sale.

If you move home, some lenders will allow you to take the loan to the new property (depending on the equity and other factors). Some lenders will require the loan to be repaid and you will have to make a new application for a secured loan on your new home.

Can I take a break in my payments?

Sometimes, depending on the lender.

Some lenders will allow you to take a 'payment holiday', meaning that you don't have to make payments to the loan for a specified period of time. However, you will sometimes have to have overpaid in advance of this to be eligible.

In addition, some lenders will allow you to take a payment holiday but it can increase the total amount of interest that you pay on the loan in the long run.

Can I take insurance in case I lose my job or can't work through illness?

Yes. Many lenders and other financial services companies offer Payment Protection Insurance (PPI).

The aim of PPI is to protect you if you are unable to make your loan repayments if you have an accident, are off work sick or if you become unemployed. Often you can buy this insurance from the loan provider or from another company.

If you are considering PPI, make sure you understand the cover and that you read the small print to ensure you will be able to claim. Many policies include exclusions which can hinder your chances of a successful claim.