Finance

There’s no shortage of companies in the financial sector eager to sell you loans, and finding a secured loan can mean sifting through a mountain of information. Here’s an introductory how to guide to finding your way through the maze.

Secured loans are loans where you are required to use your property as security against the loan – they’re sometimes called Homeowners loans, and by their very nature are riskier for the borrower than for the lender. The amount you can borrow varies from lender to lender and varies with your individual circumstances. The amount, the term available and the Annual Percentage rate (APR will depend of three things:

1. the value of your property
2. your ability to repay the loan
3. your personal circumstances.

If you default on the loan you risk losing your home.

Most unsecured personal loans allow you to borrow less money and usually set a shorter repayment period – rarely more than 7 years. Secured loans allow you to borrow more and repay over a longer period – up to 25 years. They can normally be used for any purpose. Borrowers who have difficulty accessing other loans – those that are self employed, have recently change jobs, or have previous credit problems are more likely to be considered for a secured loan.

You’ll have to do some thorough research when it comes to choosing the best secured loan for your situation. You can either do all the comparisons yourself, or register with a comparison service, usually via the internet. You need to be certain that the advice given is totally independent, and that the service provider is fully accredited to carry out their task.

Secured loans are mainly available from three outlets:

1. High street banks and building societies

2. Specialist loan providers, some of which only cater for people who have had previous credit problems

3. Brokers – they do not offer loans directly, but act as intermediaries between lenders and customers. Some loan providers only work with brokers. They are not tied to specific lenders, but work with a panel of lenders, so they can match the customers needs to the right lender. If a borrower successfully takes out a secured loan through the broker, they will receive they are paid commission by the lender.

The benefits of using a broker are that they can secure the lowest interest rates for borrowers, borrowers need only give their details once, and using a loan broker will ensure a quick response to an enquiry.

The main risk involved in taking out a secured loan is that the property is used as security against the loan. You will need to be sure you can maintain regular repayments. If you default on the loan, the lender can claim your property as payment for the outstanding balance owed. Worst case scenario, you will lose your home, damage your credit rating and affect future borrowing potential.

If you have any doubts whatsoever, consult an independent financial advisor before taking out a loan.