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How to Compare Secured Loans
If you are a homeowner and need to drum up some cash for a new car, holiday, home refurbishments etc, it's worth considering a secured loan.
A secured loan will allow you to borrow much more than an unsecured loan, as the bank has the security of your property as collateral. Providing you make the payments and don't borrow what you can't afford, these loans can be a great way to get your hands on some extra cash.
Secured loans are good for...
- Small mortgages
The amount you will be entitled to borrow depends on the amount of equity in your property.
Equity is the amount of money your property is worth, less any outstanding debts on it.
To approximate the amount of equity you have you need to get an appraisal of your property's current market value (Tip: A local estate agent will be more than willing to give you a free valuation if you "are thinking of selling your home"). From the figure of current worth you must deduct your outstanding mortgage, plus any other debts you have against the property. The remaining total will be a rough guide to the free equity.
Needless to say, the smaller mortgage you have the more you will be able to borrow and the easier it will be to afford the loan repayments. However, if after making these calculations your end sum seems a lot lower than the amount you'd wish to borrow don't worry. There are secured loans currently available that allow you to borrow up to 25% on top of your properties value.
- Big borrowing
As the bank has your property as collateral - which is more than likely worth a lot more than they are prepared to lend you – they will be keener to lend you large sums of money than an unsecured loan lender would, as they have the security of your home rather than the promise of repayment.
- Refused credit elsewhere?
Lenders are likely to lend to you even if you have a poor credit history; you could even be eligible if you have CCJ's and bankruptcy.
Secured loans are unsuitable for...
New home owners
More of a speculation than a fact: If you have just got your foot on the property ladder, with prices the way they are and constantly rising mortgage rates, it is unlikely that you are going to able to afford to pay off a large loan on top of a high mortgage.
Haphazard finances
If you have had a shaky financial history and have yet to get your finances back on track, it would be unwise to take out a secured loan. Steady your incomings and outgoings by any other means first, before considering a secured loan.
Look for:
- The best rates
With repayment periods of up to 25 years it's important to make sure you are getting the best deal, because just ½ a percent extra APR could add up to ££££'s in the long term!
Shop around for the best conditions and rates of interest. Check out our secured loan comparison page for help on deciding which secured loan is best for you.
Watch out for:
Beware fees!
There are always middle men looking to get a piece of the action and it's hard to avoid. If you can't get round it, at least know who and what you are likely to encounter so that you can be prepared!
Broker fees:
If you use a company to search for the best loan deal, check to see if they will charge you a fee for the privilege. It’s uncommon these days as most brokers receive commission from the loan lender you use, but it’s always better to be safe than sorry.
Arrangement fees:
A fee for setting up the loan: Almost impossible to avoid, but variable between companies. Find out how much you will be charged, if the charge can added onto the loan and if they offer any discounts for online application (as this requires less work and cost on their behalf).
Legal fees:
These are usually paid for by the lender, but can be very costly, so make sure that you won't have to foot the bill!
Early repayment fees:
It's tricky to know what the future has in store and, therefore, if you will be able to pay off your loan early or not. It is, however, important to know whether or not you will be charged for the benefit of becoming debt free. If you feel there is a likelihood that you'll be able to pay off your loan early check that the lender wont make you regret it!
Don't forget:
- The lengthy application process
Thinking about how you will spend the money is harmless, but don't physically spend it until you actually have it!
Secured loan applications are likely to take a month (if not more) from start to finish, dependent on who you use and, most importantly, how promptly you fill out and return any paperwork and documentation.
Compare secured loans
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