Secured loans – getting credit with a poor credit rating «

Secured loans – getting credit with a poor credit rating

Most people nowadays have at least one financial product to help them manage their finances. You probably have at least a credit card or a mortgage. However, sometimes such products are not very easy to come by, particularly if you have a history of problems repaying your debts and bills and have a poor credit rating. Nevertheless, there are still ways in which you can borrow money.

There are numerous types of personal loan on the market these days. If you’ve got bad debts you may not be able to get a straightforward unsecured loan from your high street bank, but there is a huge range of secured loans available to people who find it difficult obtaining an unsecured loan.

An unsecured loan is one in which no security (such as your home) is required as assurance. A secured loan, on the other hand, is one in which security is required as a guarantee for the repayments.

If you’re a homeowner your home can be used as security for a secured loan, even if you still have a mortgage on it. If you take out a loan secured on your house when you still have a mortgage, it’s known as a ‘second charge’. If you own the home outright and take out a secured loan using your home as a guarantee, it’s known as a ‘first charge’.

There’s a vast amount of potential in a homeowner secured loan. Think about the property market – houses are a great source of capital. A homeowner secured loan allows you to tap into this equity in order to borrow. (The equity in your home is the difference between the house value and any finance still owing such as a mortgage or any other secured loan.)

Here are some of the advantages of homeowner loans:

• You’ll be able to borrow a much larger sum over a longer borrowing term than you would with an unsecured loan, because your home (a valuable asset) is used as security, so from the lender’s point of view, the risk of loss to them as a result of you defaulting on repayments is reduced. (However, having your home as security against a loan does mean that you could lose it if you fail to keep up your repayments.)

• Even negative equity isn’t an obstacle to getting a secured homeowner loan. Some lenders are prepared to lend over 100% of the property value. (Negative equity is when the amount of money you owe on the property is higher than its value.)

• As homeowner loans constitute less of a risk to the lender, they often have a lower interest repayment rate than standard unsecured personal loans – so you may find that the repayments are much more affordable.

• You can spend the loan money on anything you want – not just your home. People take out secured loans for many reasons, such as raising capital to set up a business, buying a vehicle, repaying or pulling together other loans or debts, or splashing out on a dream trip or cruise.

• Secured homeowner loans are easier to obtain than unsecured loans for people with a poor credit rating. If you’ve got a history of struggling with debt repayment, it doesn’t mean you can’t borrow money – you could still have access to money through a secured loan.

No two homeowner loans are the same. The terms and conditions can often be negotiated so you should be able to find one that is right for you. Repayment terms can be flexible, as can the loan amounts and the interest rate deals. However, all of these will depend on various factors including the value of your home and the equity available for release as well as your credit history and how confident the lender is that you will be able to meet the repayments.

Don’t just sign up to the first deal you see. Obtaining a homeowner loan is like anything else you buy. You should look around and compare deals until you see the one that represents the best value for money and meets your needs. One thing to be aware of when making comparisons between deals is that the advertising of the interest rates can differ vastly between lenders, which can be a little misleading. Some advertise the (often lower) monthly interest repayment rate rather than the Annual Percentage Rate (APR). To make your comparisons between deals, it’s the APR that you should be looking out for. Find out what the APR is, how much your repayments each month will be and what the total repayment amount is. Remember that shorter repayment terms mean repaying less in interest and therefore a lower total loan repayment cost, so you should aim to go for as short a repayment term as you can afford.

Another thing to look out for is hidden penalties and fees. With some loans, you may incur a penalty charge if you decide to repay the full amount early. Other loans may charge you various fees for arrangements and administration. The key here is to scrutinise the terms and conditions in the small print – and ask for clarification if there’s anything you don’t understand.

Nowadays there are so many companies offering financial products, many of which are at a very competitive rate compared to high street banks and lenders. You can even arrange credit cards, loans and insurance at your local supermarket! It’s also worth looking on the Internet to see what deals online providers are offering.

Before you decide to look for a homeowner loan, consider carefully whether it’s the right thing for you. It’s a very important decision as it involves your home. Although homeowner loans can offer good deals and convenience for people who struggle to obtain finance, you should only consider obtaining one if, upon examining your personal financial situation in detail, you are sure that you will be able to maintain your repayment obligations. Remember that your home is at risk if you fail to keep up.


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