If you’re a homeowner and looking to borrow a large sum of money, then a secured loan might be a good option for you. Secured loans allow you to borrow by using your home as the security for your debt. These are a second loan on your property after your mortgage and can be a good personal finance option.
Who can get a secured loan?
Secured loans – also known as ‘homeowner loans’ or ‘second charge loans’ – are predominantly aimed at homeowners who are unable to get a personal loan elsewhere. This is often due to a non-existent or bad credit rating. These types of loans also work well for homeowners who are looking to borrow significantly more than an unsecured or personal loan can offer.
What are they for?
How much can I borrow?
As your home is used as the security for the debt, secured loans allow you to borrow a much larger amount of money with a lower interest rate in comparison to unsecured loans. However, lenders do consider secured loans to be of greater risk to borrowers than an ordinary bank loan. This is because missed payments can result in the loss of your home.
If you do choose to go down this route you should ensure that you only borrow what you know you can realistically pay back each month.
If you are looking to borrow a smaller loan amount (less than £15,000) then a personal loan might be a safer option for you as you won’t run the risk of the lender reclaiming your home. However, you should be aware that the lender can still put a charge on your property if you fail to make monthly repayments.
The Citizens Advice website provides great information on how charging orders work.
What are the pros and cons?
As with any type of loan, there are a number of advantages and disadvantages that you should take into consideration:
Advantages of secured loans
- You don’t need a perfect credit rating.
- Rates can be low, especially when compared to some unsecured personal loans.
- Repayment periods can be longer, giving you more time to repay the loan.
Disadvantages of secured loans
- You coud be at risk of losing your home if you don’t continue to make payments on time.
- Early repayment penalties could increase the cost of the loan.
- Rates can often be higher than a first charge mortgage.
Homeowner loans for poor credit
A secured loan gives you the opportunity to borrow money even if you have a bad credit history. This is because decisions for these types of loans aren’t made solely on your credit score. If you are a homeowner, it can be easier to take out a secured loan compared to an unsecured loan or credit card. The total amount you can borrow can be much higher as well as the risk to the lender is lower than other loan types.
Bad credit secured loans
You might be in a position where you’ve had financial difficulties but can now comfortably afford to pay back a loan. A secured loan can give you the opportunity to do this even if you have a poor credit history. Taking out this type of loan can also help you to improve your credit score for the future. By demonstrating your ability to repay commitments, this could increase your options of refinancing to a more competitive rate in the future.
How we can help
As a mortgage broker we specialise in finding the best deals on mortgages. We can compare a number of loans from our different lenders to provide you with the most suitable loan for you.
Why Clever Mortgages?
At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home. We have a panel of trusted mortgage lenders and will help you choose the right provider for your circumstances. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only offer you products that meet your needs.
Mortgage types explained
A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.
The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.
Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.
This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.
A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as it can allow you to make lower repayments, however as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.
A tracker mortgage is similar to a variable rate mortgage (where the interest can move up and down); but these instead track a nominated interest rate rather than the lenders SVR. Tracker mortgages are usually linked with the Bank of England’s interest rates (plus a few percent).
A capped mortgage is the same a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.
Offset mortgages are linked to a savings account as well as your current account. Each month the lender will look at the amount you owe on your mortgage and then will deduct the amount you have in savings. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.