Secured Loans

If you're looking for the best secured loan deal that the current market has to offer, why not complete the form to your right for a free, no obligation quote. Let us source the right plan for you, from a selection of more than 350 secured loan options. Below, we have also provided some information regarding this specific loan type.

About Secured Loans?

A Secured Loan is a loan which uses some sort of asset as a security for the loan. The most common type of security is a house, usually the borrower’s home, although other items could be used, for example a car ( this would be the security used in a car finance agreement).

The loan is secured against the value in the property, above the level of any outstanding mortgage. The phrase “Secured Loans” may lead the borrower to believe that there is some level of security for themselves. This is not the case however. The security is actually for the lender, who is able to claim the outstanding balance of the loan from the secured property, should the borrower default on the repayments. The lender has the legal right to force the sale of the property if necessary to reclaim the balance of the loan.

What are the advantages?

As the loan is secured on property, the total risk presented to the lender is reduced and therefore the rate of a secured loan tends to be lower than that of an unsecured loan. The term of the secured loan is also able to be spread over a longer period of time, which has the advantage of reducing the monthly repayments. If a borrower has a poor credit rating, or has had financial problems in the past, they will be more likely to be accepted on a secured loan for the reasons already stated.

What are the disadvantages?

As this type of loan is secured against the borrowers property, it is likely to take longer to arrange than an unsecured loan and could also involve additional costs, such as valuation and legal fees. If the secured loan is taken over a longer term of years, although the monthly repayments will be lower, the overall cost of the loan could be significantly greater than one taken out over a shorter period, as interest on the secured loan will be payable for longer.

The biggest risk with secured loans is that due to the fact that it is secured on the borrower’s home, the lender has the right to force the sale of the property to reclaim its losses in the event of the borrower defaulting and the borrower should be aware that: your home could be at risk if you do not keep up repayments on your mortgage or other loans secured on it.

Are secured loans common in the UK?

Over the last few years’ secured loans have become an extremely popular way for UK borrowers to attain credit. Analysts believe that by 2013 the UK secured loans market will be worth approximately £11 billion pounds. The primary factors used to explain this growth, which have already been touched upon within this guide include: -

• The ability to borrow larger amounts, over longer periods of time.
• The ability to source a competitively priced loan, regardless of credit history.

However there is one other factor, which also plays a vital part in the growth of this particular loan type…the housing market. The vast majority of applicants realise that secured loans provide the ideal vehicle to release equity from their home, especially if market conditions have been favourable. However, if economic factors were to have an adverse effect on house prices, and equity levels were to decrease as a result, it would be highly likely that the secured loans market would slow if not even decline.

Regulated Secured Loans

There are two types of regulated loans:

Any secured loan for a sum of £25,000 or less is regulated under the Consumer Credit act 1974. This means that an individual applying for a secured loan of under £25,000 will be given copies of the loan agreement to consider and is entitled to a “cooling off” period of at least seven days, during which time the lender, or broker, is not allowed to contact the client, other than to respond to a question from the borrower. This is to allow the borrower time to consider the secured loan and take independent advice if required.

Residential Mortgages are also regulated, but in this case by the Financial Services Authority (FSA). Potential borrowers must be given a Key Facts Illustration by an authorised lender or broker, which gives full details of the loan. There is no “cooling off” period available with a mortgage as the client will be taking legal advice from their solicitor who should be able to advise them accordingly. Buy to Let and Commercial mortgages are not regulated in this way.

Unregulated Secured Loans

Secured loans for a sum of £25,001 and above are not currently regulated in any way, either by the Consumer Credit act 1974, or the FSA. This means that there is no requirement to provide a “cooling off “ period, although some lenders will provide a seven day cancellation period, during which time a client is able to change their mind. It may seem strange that larger secured loans do not have the same level of protection as smaller loans, but the view of the regulators is that someone applying for a loan of over £25,001 is likely to take legal advice in connection with their application and therefore do not require this protection.

How to get the best secured loan deal

Although having a squeaky clean credit record is less of a detriment in order to qualify for a reasonable to good deal, it stands to reason that the cheapest secured loan plans are only made available to those people whose credit profile is flawless. If you do consider yourself to have an excellent history of credit i.e. you have no defaults, CCJ’s or arrears a prospective lender will bend over backwards in order to supply you with the type of rate that you deserve.

It is also advisable to be as thorough as possible in your search for a secured loan, and it may even be worth your while to obtain a couple of quotes for which to benchmark against. However, if you do take this course of action you must be aware that by having a number of lenders and brokers working for you, in order to supply a quote, can result in multiple searches against your credit profile.