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What is a second charge loan?
You may have come across the term 'second charge loan' in the past and wondered what type of loan it was. Well, simply put a second charge loan is just another term for a secured loan, which is a loan that is secured against your home. Some things to remember about a second charge loan are:
- These loans are available only to homeowners.
- They allow you to borrow the value of your property minus your mortgage – your equity – hence the name ‘second’ charge (with your mortgage being the first charge).
- The loan is a 'second charge' on your home, which means that you must keep up with repayments to avoid risking your home.
- These loans are often available to those with bad credit, as they are secured against the home and therefore offer more security to the lender.
About second charge loans...
Most people are familiar with the term secured loan but many may not have heard the term 'second charge loan'. These loans are basically secured loans, which means that the loan is secured against your home. When considering a second charge loan you will find a number of providers, and amongst the factors taken into account by the lender are your financial status, your credit history, your income and outgoings, the value of your home, and any outstanding mortgage on your home.
A second charge loan is so called because it is a second charge on your home, the first, of course, being your mortgage. If you are thinking about taking on a second charge loan you need to make sure that you can comfortably afford the repayments, bearing in mind possible interest rate rises, as failure to keep up with repayments on this type of loan could result in the loss of your home.
When looking for second charge loans you should, of course, compare deals from a number of providers, as you would with any other type of loan. You should compare areas such as the interest rate charged, any arrangement fees or penalty charges, borrowing levels, and repayment periods. Always make sure that you read the small print with this type of loan – remember it is secured against your home so you need to make sure that you are taking on the right loan.
Because a second charge loan is a secured loan it is often available to homeowners with poor credit, as there is increased security for the lender. As with other types of loan, the interest rate charged on second charge loans may be higher for those with bad credit.
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