A guide to Loans

TOP TIPS TO TAKING OUT A LOAN AGAINST YOUR HOME

In the venture to borrowing money, one must be aware of the type of resources available.
There are two main types of loans, secured and unsecured.
This guide explores the first option of a taking out a secured loan.

TAKING OUT SECURED LOANS

A secured loan is any loan that requires the borrower to provide the lender with some form of security. In the case of secured loans the security will be the borrower’s property, regardless of whether it is leased or owned outright. Loans secured against property that is already mortgaged are known as second charges, whereas loans secured against a property owned outright with no existing mortgage in place are known as first charges.

Secured home-owner loans are available in varying amounts and for many different purposes, including debt consolidation. The amount available usually ranges from £3,000 to £50,000, although some lenders will consider lending up to £100,000. The amount borrowed is repaid monthly over a term agreed at the outset, which will usually range between three years and twenty five years. You may be charged a penalty if you repay your loan earlier than agreed, and you should check each lender’s individual policy with regards to this.

Lenders charge interest on the amount you borrow, which is referred to as the Annual Percentage Rate (APR). The amount you can borrow, the term available and the APR will all depend upon the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances, for example any adverse credit. Subject to your circumstances, you may be able to borrow up to 125% of the property value. The APRs quoted by the lender will usually be typical rates, and these act as a guide only. The exact rate offered will be on an individual basis.

As a general rule, it is advisable to compare the APRs of different loans, as this is a good way to determine how competitive they are. Depending on your circumstances, secured loans may be easier to obtain than unsecured loans. This is because the lender has the added benefit of security, which provides protection in the event of a customer's inability to repay. This also means that persons, who are self-employed, have recently changed jobs or who have adverse credit can take out a loan. They are also useful for larger amounts or where the applicant requires a longer repayment period.

When assessing your application the lender will consider your income and financial commitments to determine whether you can afford to take on and repay additional finance. They will look at your past credit history and take into consideration any adverse credit such as mortgage arrears, defaults or county court judgements. All lenders insist that where an applicant is married, both parties should be named on the application form.