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How Do Secured Loans Work?
What fees are involved in taking out and using a secured loan?
The number of and amount of the fees involved when taking out a secured loan can vary considerably between each secured loan product and also how you apply for them.
The most common fees involved with secured loans are broker fees, arrangement fees, valuation and legal fees and early repayment fees.
If you take out a secured loan through a loan broker (a company who searches loan lenders and carries out the loan application for you), you may be charged a broker fee. However, most loan brokers don't charge this fee as they receive their earnings through commissions paid by the loan lenders.
Arrangement fees are pretty common place when taking out a secured loan, they can be as much as a few hundred pounds, but you will usually have the option of adding this amount to your secured loan. You can sometimes get a reduction in the arrangement fee when you apply for a secured loan online.
The secured loan lender usually pays valuation and legal fees, however it is important to find out if they will pay these fees or if they will charge you the fee, as they can be in excess of £100.
Early repayment fees will not apply unless you choose to repay your secured loan before the end of the loan term. Not all secured loans will charge you an early repayment fee, and if you know that you will repay the loan early, you may want to consider choosing a secured loan that has no early repayment fees or penalties.
How long does it take to get a secured loan?
The amount of time between applying for a secured loan and getting the funds into your bank account can vary between loan lenders, but a good rule of thumb is to allow 4 to 6 weeks from start to finish.
You can speed up the loan process by making sure you sign and return the contract quickly, as the longer you leave it sitting around, the longer it will take for your secured loan application to go through.
If you need a valuation report you should also try and be flexible with your appointment time so that it can be done as quickly as possible, as they will still need to finish the paperwork and file the report.
When you take out a secured loan you can sometimes choose to have your money 'couriered' to you. You will be charged a fee for this service, which is usually between £20 and £40. This service will get your funds in your bank account within 24 hours of the secured loan lender receiving your completed signed paperwork.
The secured loan application process...
It's a good idea to allow 4 to 6 weeks for the secured loan application process, there can be a lot of to-ing and fro-ing of paperwork to be signed and checked and you may also need a valuation report on your house.
You may be required to produce documentation of proof of your income including payslips and back account statements, or your account records and tax returns if you are self-employed. If you are a new customer of the bank or building society your secured loan application is with, you may also need to provide proof of ID like a passport or driving licence and your marriage certificate if your mortgage is in your maiden name.
If a valuation report is required with your secured loan application, a valuation company working for the loan lender will arrange an appointment with you to come and value your property. Once they have visited they will write a report and return it to the loan lender, so the loan lender knows how much your property is worth and if they can lend you the amount of money you wish to borrow.
Once your secured loan application has been accepted you will be sent a contract of your secured loan and also a mortgage deed contract. You will need to sign both of these and have a witness signature too, and then return them to the loan lender.
When your secured loan application has completed, your secured loan lender will transfer your funds to your nominated bank account. Unless you have chosen a priority deposit (which has a fee) the money should arrive in your bank account within 3 working days.
After all that, you'll then have your secured loan money to finance your loan purpose. Spend it wisely!
In the future...
Financial circumstances do change, and in the future you may find yourself able to repay your secured loan by taking out a further advance on your mortgage instead, or you could always re-mortgage your property and use the extra funds to repay your secured loan.
Switching to a further advance or better yet, re-mortgaging, will save you money in the long run, as mortgages tend to have lower rates of interest than secured loans.
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