A secured loan is a form of credit taken out by a homeowner. Typically a secured loan is used to borrow a large sum of cash, perhaps to make major home improvements or for someone looking to start up a business.
They are known as secured loans because the lender will usually take charge of an asset (usually your property) as additional protection in the event of the borrower defaulting on the loan. If you fail to remake the payments, then your home may be at risk of repossession.
Why not just remortgage?
If you already have a mortgage, then why would you consider the additional risk and expense of a secured loan? If you have enough equity in your home, you do have the option of remortgaging to release some of this cash. However simple this may sound, it isn’t always the right option for everyone.
We have listed some reasons below, why a secured loan may be a better option than a mortgage:
You already have an unbeatable mortgage rate
When homeowners remortgage, they are often looking to find a lower interest rate. By switching lenders you could potentially save thousands of pounds over the term of your mortgage. But if you’re already on a low rate that you just can’t beat, remortgaging wouldn’t make any sense.
You need access to the money now
Secured loans are usually quite quick to set up. In some cases, the money may even be released the same day. If you are remortgaging this can take a little longer.
The speed of transaction may depend on your individual circumstances and how much you are wishing to borrow. However, typically the money from a secured loan will reach your bank account quicker than with a remortgage.
It’s difficult to prove your income
It’s not impossible to get a mortgage when you are self-employed, however you will need to provide proof of income to your lender. They will normally ask for at least two years worth of accounts.
While you still need to provide proof of income to apply for a secured loan, lenders tend to be a bit more flexible. This is due to the added amount of security.
You’ve got poor credit history
Are you struggling to get accepted for a new mortgage because of your credit history? If so a secured loan may be a better option. It can be frustrating if you’ve had debt issues in the past, but can now afford to take on additional credit. Some mortgage lenders will have strict criteria. This means that if you’ve had any CCJs or been declared bankrupt in the past, some mortgage lenders will not accept you as a new customer. However, with secured lending, you will find that there are certain lenders who will consider a much wider range of credit issues.
Should I consider a secured loan instead of a remortgage?
In terms of the cost of borrowing, then remortgaging can sometimes be the more cost-effective option. Particularly if you can remortgage onto a better deal. However, if you fall into any of the categories mentioned above, and are still looking to raise cash from your home, then a secured loan may be more appropriate for your circumstances.
The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.