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Secured Loans – The Potential Saving
Loans fall into two types: Though unsecured loans may seem more attractive as you are not putting your home at risk, there are many potential benefits to a secured loan if you are sensible. So, what are the key advantages of a secured loan? (Note: secured loans are frequently referred to as homeowner loans). A Low Rate of Interest A low rate of interest is the key benefit of a secured loan. Interest rates or APRs (Annual Percentage Rates) on secured loans are typically 7% - 10% APR, only a little above mortgage rates. The actual interest rate you pay depends on a number of factors, such as your credit history, how much equity you have in your property and your income. Unsecured borrowings, such as personal loans, bank overdrafts and credit cards are normally much more expensive. Personal loans can offer reasonable rates but you are committed to borrow for a fixed term – settling early will involve a penalty charge. Bank overdrafts and credit cards charge interest rates of 13% - 19% APR while store cards charge typically 26% APR. These forms of borrowing are really only designed for short term financial needs. If you use these products for long term borrowing you are simply throwing away money - the cost will always be higher than a personal loan or secured loan. For example, if you only make the minimum payment on your credit card your outstanding balance will increase dramatically as you will pay compound interest, that is, interest on interest. In summary, don’t pay a fortune for short term borrowings unless you are confident that you will pay them off quickly. Secured loans enable you to borrow larger sums over longer terms and at much lower interest rates. A Larger Loan If you need a large sum of money, a secured loan will enable you to borrow far more than an unsecured loan. The only real limit to how much you can borrow is the amount of equity you have in your property. For example, if your property is valued at £100,000 and you have a mortgage of £50,000, you have £50,000 of equity. Lenders will normally lend up to 90% of your property’s value, that means that you can take out a new mortgage (remortgage) for £90,000 or take out a secured loan for £40,000. Secured loans normally start at £5,000 with a maximum of £250,000 but it is not uncommon to exceed this limit if remortgaging is inappropriate. There are secured loans available of up to 125% of your property’s value if you have a good credit record. In these circumstances, the lender is taking on greater risk since the loan is not fully secured by your property. A Longer Period of Borrowing Another benefit of secured loans is the longer time period (the loan term) available to repay the loan. Secured homeowner loans have terms of up to twenty five years, while the maximum unsecured term is normally five years. The advantage of a longer repayment term is that the capital you have borrowed can be repaid over a longer time period, so your monthly payments will be lower. However, be careful – you will pay more interest. This is where the purpose of the loan is important. If your loan is needed to finance home improvements, which you will enjoy using and will add value to your property, long term borrowing can be justified. You can view your secured loan very much like your mortgage. However, long term borrowing taken out to finance short term consumption, such as a holiday or car, makes less sense. A Simple Process It is quite easy to obtain a secured loan and the process from application to completion need take no longer than three weeks. In straight-forward cases, you can have your money even faster. As you are putting your property up as security, lenders can make you a loan offer extremely quickly. For your protection, there is a seven day “cooling off” period required under the Consumer Credit Act: you will be provided with an advance copy of the secured loan agreement seven days before being asked to sign the actual agreement itself. Today the procedure for obtaining loans has become simpler and faster if you apply online. Completing an online form should be easy and not time-consuming. When you submit your application, the finance broker or lender will contact you the same day. This enables you to discuss the alternatives at the outset and decide which product best suits your needs. If you decide to proceed you must expect to be asked for some documentation, such as recent bank statements and payslips. In order to avoid fraud, you may also be asked to confirm your identity by producing your passport or driving license. Cost-Effective Fund Raising If you are a homeowner, you will still be able to obtain a secured loan even if you have a poor credit rating. Secured loans are frequently used for debt consolidation, that is, to refinance existing debts more cheaply. If you use your secured loan wisely, you have the opportunity to save money and improve your credit status. This means that a secured loan can result in cost-effective fund raising for all property owners. About the Company Burtplan Personal Finance is a leading UK loan broker and mortgage introducer. With 50 years experience, the company helps borrowers obtain low rate loans and mortgages which are arranged in the shortest time possible. Burtplan Personal Finance works with independent secured homeowner loan brokers who negotiate the best possible deals for their clients. Visit Burtplan for more information about
secured loans.
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