The term ‘secured loan’ is used in reference to any type of loan that is secured against the borrower’s assets. A typical example of this would be a mortgage, which is secured against the applicant’s home.
But this is just one of many different types of secured loans available, some of which can be secured against a much broader range of valuable assets. From homeowner loans to secured commercial loans to bridging loans, asset ownership can open the door to a long list of secured lending products.
Who can take out a secured loan?
Flexibility and accessibility are two of the biggest points of appeal for secured loans. If you own your own home or a business property, you are almost guaranteed to be eligible for a secured loan.
The amount you can borrow will be determined by how much equity you have tied up in your home or other assets. Lenders typically restrict their secured products to a maximum LTV (loan to value) of 90%.
This means that if you have £200,000 equity in your home, you may be able to borrow up to £180,000.
How can I get a good deal on a secured loan?
Irrespective of the type of secured loan you apply for, the key to getting a good deal lies in adopting a proactive approach.
Specifically, the five tips and guidelines below could help you secure a competitive deal from a top-rated lender:
- Never pay broker fees: Working with an established broker can simplify the process of getting a great deal on a secured loan. However, the only brokers worth doing business with are those that do not impose fees on the applicant. The whole point of working with a broker is to get a better deal, so it makes no sense to work with a broker and ultimately end up paying more. If broker fees are payable, apply elsewhere.
- Borrow at a lower LTV: The tendency among secured loan applicants is often to apply for the maximum sum they can borrow. While it can be tempting to take out a loan larger than you need, this can also pave the way for elevated borrowing costs. Lower LTVs almost always mean significantly lower interest rates and, in some instances, reduced fees. Always remember that secured loans are paid as financial products, meaning that the more you borrow, the more you can expect to pay in return.
- Improve your credit score: If doing so is viable, taking a look at your credit score with the aim of improving your profile is worth doing. Your credit score will play an instrumental role in determining how much you are charged, by way of both interest and additional borrowing costs. If your credit score is on the low side, you may need to target specialist lenders who offer ‘ subprime’ loans for poor-credit applicants. If in doubt, delay your application until you have sought advice. Remember that each declined loan application could further affect your credit score.
- Consider short- and long-term options: Interest rates and borrowing costs are also tied to the length of the loan repayment term. On one side of the scale, you have the traditional mortgage—repaid over the course of several decades, amounting to a major long-term expense. On the other hand, you have secured bridging loans, designed to be repaid within a matter of months and charged at rates as low as 0.5% per month. Always remember that the faster you repay your secured loan, the less you will pay for the facility.
- Always get multiple quotes: It is always advisable to get at least a handful of quotes from different providers before making your final decision. This will give you a good idea of the options available while helping you secure a competitive loan from a reputable lender.
What are the downsides of secured loans?
Before applying for a secured loan, it is important to carefully consider the two main drawbacks of secured lending:
- You need to own assets of value to be eligible for a secured loan.
- Your home is at risk of repossession if you do not keep up with your repayments.
Organising an obligation-free consultation with your preferred lender is therefore essential before committing yourself and your assets to a secured loan of any kind.
Increasingly, UK homeowners are turning to home equity loans to tap into the cash they have tied up in their properties. As average house prices continue to skyrocket, people are finding themselves sitting on small fortunes and taking full advantage of them.
With a home equity loan, it is possible to release as much as 85% of the equity you have tied up in your home. This means that if you have a home with a market value of £400,000 and you have repaid £200,000 on your mortgage, you could borrow as much as £170,000.
Essentially, a home equity loan works similarly to a second mortgage. You can borrow anything from £10,000 up to the maximum LTV (loan to value) the lender will offer, usually capped at 85%. Best of all, the funds can be used for almost any legal purpose, with almost no restrictions whatsoever.
How does repayment work with a home equity loan?
Addressing the obvious elephant in the room, your home may be at risk of repossession if you do not keep up with your equity loan repayments. Paying back a home equity loan works in the same way as a mortgage, an ongoing series of monthly repayments, as agreed with your lender.
Unlike a mortgage, there are no deposit requirements to take out the loan, and the facility can be arranged much faster.
Interest rates and borrowing costs vary significantly from one lender to the next, highlighting the importance of shopping around for a good deal.
What are the advantages of home equity loans?
The biggest benefits of taking out a home equity loan are as follows:
- Access a large amount of credit: For eligible homeowners, home equity loans provide the opportunity to access significant amounts of tied-up capital. You may be able to borrow up to 85% of the equity you have tied up in your home, far more than any personal loan or unsecured product.
- Lower interest rates: Loans secured against assets of value almost always have lower rates of interest than comparable unsecured products. The provision of assets as security for the loan makes it a lower-risk facility in the eyes of the lender.
- Longer repayment terms: Repayment terms on a home equity loan are flexible and can be tailored to suit the requirements of the borrower. Depending on how much you borrow, you could repay the loan gradually over anything from five to 35 years.
- Wide range of uses: Most lenders place comparatively few restrictions on how a home equity loan can be used. From home improvements to investment property purchases to funding new business start-ups, the funds are yours to do anything you want with.
What are the disadvantages of home equity loans?
Before applying for a home equity loan, it is important to consider the following drawbacks:
- Risk of repossession: If you fall behind on your repayments, your lender may begin repossession proceedings and seek to take ownership of your home. It is therefore inadvisable to apply for any kind of secured loan unless you are 100% confident in your ability to repay the facility in full.
- Long-term debt: The decision to enter any form of long-term debt should not be taken lightly. This counts double if you are still repaying your original mortgage, and you will subsequently find yourself with two equally important monthly outgoings to cover.
- Additional fees and costs: Depending on whom you work with, arranging a home equity loan can be anything from highly affordable to extremely expensive. Arrangement fees, valuation fees, administration fees, broker fees, and exit fees may all apply, so it is important to shop around for a good deal.
Can I repay a home equity loan early?
If you change your mind and decide to repay your home equity loan early, you are perfectly within your rights to do so. However, the vast majority of lenders impose early repayment fees in order to compensate for lost interest.
This is something to be particularly mindful of when formalising your agreement. Early repayment fees vary significantly between products and lenders and should be considered carefully before taking out any secured loan.
If you have any equity whatsoever tied up in your home, you may qualify for a secured loan. Even if your equity level is just 5% or 10%, it may still be possible to access a competitive deal.
But does this mean that consolidating other debts with a secured loan is a good idea? If a secured loan is not an option, what alternatives are available for debt consolidation?
The benefits of consolidating debt with a secured loan
One of the main benefits of a secured loan is that you can borrow considerably more than would be available with a personal loan. Secured loans are typically available for sums of £20,000 and more, making them a viable option where a person’s debt level is relatively high.
Whether a secured loan could reduce your monthly outgoings depends on a variety of factors. The most important of which is the length of the loan term, which could be anything from five years to 35 years. The longer the repayment period, the lower the monthly repayments, but the higher the overall borrowing costs.
An individual struggling to keep up with multiple debts and monthly repayments they cannot afford could find a secured loan an affordable and accessible solution. All with the added bonus of safeguarding their credit score, which can sometimes be affected when applying for specialist debt consolidation products.
The drawbacks of consolidating debt with a secured loan
Secured borrowing is considered a higher risk for the customer, as it is necessary to offer an asset (usually your home) as security against the loan. The asset serves as an insurance policy for the lender, who has the legal entitlement to take possession of your property if you fail to meet your repayment obligations.
It is therefore important to consider your current and projected financial situation carefully when considering securing a loan against your home. While most lenders will make every effort to avoid repossession when borrowers fall into arrears, you risk losing your home if you cannot repay your loan.
What are the alternative options available?
A personal loan could be a viable option for consolidating debts totalling no more than £10,000. You will need an excellent credit score to qualify, and you must be able to provide a full disclosure of your current financial circumstances.
Remortgaging is also an option, wherein you effectively increase the value of your existing mortgage to tap into the equity you have tied up in your home. This can be an affordable, long-term solution, often taking just a few days to organise.
Specialist debt consolidation loans are available, though they have the potential to adversely affect the customer’s credit score. Likewise, some consolidation products have high rates of interest and elevated overall borrowing costs.
To find out more, please contact a member of the team at BridingLoans.co.uk; we are waiting to help.
Bridging loans are a specialist type of secured loan that can be particularly useful in time-critical situations. Secured loans in general can be quicker and easier to arrange than unsecured personal loans, but the underwriting process can still be lengthy in the case of larger secured loans, such as mortgages.
Speed is one of the reasons bridging loans have become the go-to finance product for both businesses and consumers in situations where turnaround time is of great importance. When time is critical, there is perhaps no faster or more convenient option available than bridging finance.
You will need to have sufficient security to cover the loan amount, but the application and underwriting processes are generally much simpler than those of other types of secured loans.
Specific instances where bridging loans are considered the ideal alternative to a traditional secured or unsecured loan include:
Fast property purchases
One of the most common applications for bridging finance is purchasing properties at a bargain price before your competition. Whether commercial or consumer, getting a great deal on a property often means snapping it up quickly while the opportunity exists. Instead of waiting months for a traditional mortgage application to be approved, bridging loans can be paid out within a matter of days.
Buying property at auction
The same also applies to properties that go under the hammer at auction, which can often be purchased for well below their market value. The only proviso is that you rarely have more than 28 days to pay for the property in full. This timeframe is often out of the question with traditional mortgages but perfectly possible with a bridging loan.
Urgent business expenses
Businesses can face unexpected outgoings and/or higher-than-expected costs. Unfortunately, these unexpected costs often arrive at the worst possible time. There are countless applications for bridging loans in a business environment, i.e., urgent tax payments, critical business equipment replacements, etc.
The importance of urgent action to avoid repossession needs no explanation. The prospect of losing your home or business property can be a terrifying prospect, but bridging finance can be used to quickly rectify the problem. Bridging finance can be used to repay repossession debts, enabling the owner to retain full control of the property and its destiny.
Probate and inheritance tax problems
Time can also be a factor when it comes to probate and inheritance tax issues. Bridging finance can be used to meet the tax obligations, allowing the applicant to realise the inheritance.
We recommend that you always seek professional, independent advice if you have any concerns or questions regarding probate and inheritance tax issues.
Property repairs and updates
If the property where you live or let falls into disrepair, you may be legally (or at least ethically) obliged to bring it back into line. Depending on the nature and severity of the issue, immediate and extensive repairs may be necessary. In this case, a bridging loan could be an ideal short-term solution for correcting problems before they are allowed to deteriorate further.
Bridging finance can also be perfect for extending a buy-to-let property portfolio. If and when the perfect property is found at the right price, rather than missing out on the investment opportunity of a lifetime, one or more of your existing properties or even the new property can be used as security for bridging finance, enabling you to purchase and expand your portfolio within a matter of days.
Contrary to popular belief, owning and operating a viable business does not necessarily mean that major banks and lenders are willing to lend a helping hand. Increasingly, banks are becoming so selective with who they will and will not support that businesses at all levels looking to expand sometimes find themselves facing a brick wall.
Of course, it’s understandable that growing and ongoing economic uncertainty makes it difficult for conventional lenders to know where and how their own money is best invested. Nevertheless, this doesn’t help those in the business world who desperately require expansion and development capital in order to allow their businesses to grow, evolve, and succeed.
In instances where traditional lenders are unable or unwilling to help, the alternative is to consider a secured business loan. Regardless of what it is that has been standing in the way of obtaining financial support from a conventional lender, there’s every chance a secured loan could be the answer.
The reason is, that just as long as you have the required collateral to secure the loan, that’s really all there is to it. Assuming you own and operate a business of some kind, this will usually mean that you have a variety of assets that can be put up as collateral. From commercial or residential property through business equipment to vehicles and even intellectual property, loans can typically be secured in a wide variety of ways.
The benefits of secured loans
While conventional financial products and services have their own unique place in the market and value, secured loans have the potential to benefit modern businesses in a multitude of ways.
- Speed: For example, it is usually possible to get hold of the capital required by way of a secured loan much faster than any comparable approach to commercial financing. Even in the case of relatively large sums, payouts are extremely prompt.
- Simplicity: Quite the opposite of conventional commercial loans, the application process for a secured loan can be comprehensively simple. Once again, it generally all comes down to the simple proviso of being able to provide the required collateral.
- Qualification: In order to qualify for a typical business loan, it is usually necessary to provide extensive evidence of the company’s current performance, have a strong credit record, and generally meet a wide variety of demanding criteria. With a secured loan, just as long as you have the required collateral to cover the value of the loan, very little else matters.
- Flexibility: Loans that are secured with collateral also tend to be considerably more flexible when it comes to things like repayment periods and so on.
- Borrowing Costs: Depending on the nature of the loan and from where it is obtained, a secured commercial loan can also be comprehensively more affordable than a comparable traditional financial product.
With such a wide variety of options to choose from, it pays to speak to an independent broker or financial adviser before deciding which way to go. In any case, any business on the lookout for financial support for property acquisition purposes would be wise to consider the benefits of a secured loan.
Do you need a competitive, non-status bridging loan?
If you are looking for flexible, low-cost finance secured against your assets that won’t be affected by your credit rating or borrowing history, then a non-status bridging loan is the perfect solution. When a property owner applies for non-status bridging finance, the lender is less concerned about your financial past and more interested in the real estate that you are providing as security.
The vast majority of secured loan products are quite complicated to arrange and can take weeks to process, assuming your application is successful in the first place. Of course, many loan specialists are offering bad credit products, although the cost of borrowing is usually excessive, to say the least. With a non-status bridge loan, you can get a decision in less than 24 hours, and the funds are typically made available within 5 to 7 days.
How much can I borrow?
In most cases, non-status bridging finance is available with a loan value of up to 70% or more. However, if a borrower can provide additional security by offering a second or third property as collateral, an LTV rate of up to 100% is possible. Of course, this will entirely depend on the lender you choose to work with. By using the services of a specialist broker such as UK Property Finance, sourcing a cost-effective product that is tailored to fit your individual borrowing circumstances is effortless and stress-free.
Non-status bridge finance for any purpose
With a non-status bridge loan, you can release the equity in a property, or multiple properties, that you own and use the funds for any reason you see fit.
Common uses of this type of finance include:
- Financing property refurbishment and development
- Funding a property purchase while waiting for a different property to sell
- Buying property at auction
- Paying an urgent HMRC tax bill
- Eliminating short-term cash flow problems in business
Bridging loans are short-term products that can be used for all manner of reasons. With low-interest rates, flexible borrowing criteria, and the option of rolling up the interest until the end of the loan term, non-status bridging loans are an incredibly attractive option that can be arranged swiftly and effortlessly, regardless of your personal borrowing requirements.