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Secured and Unsecured Loans
Secured Loans facilitate
borrowers to avail of capital against the value of the asset placed
as security with the creditor. The creditor now has the ownership
rights to the asset, which acts as guarantee against the loan. Although
the asset is normally in the form of a home, security can also be
offered by placing any concrete property, a vehicle or a valuable
asset as collateral. This is why; secured loans are often referred
to as “Homeowner Loans”, “Home Loans”,
“Secured Personal Loans” or “Second Charge Loans”.
For secured loans, the loan amount ranges from £5,000
to £75,000 and the repayment period extends from 5 to 25 years.
The purpose of taking a secured loan could be consolidation of your
existing loans, to clear out unpaid bills, making home improvements
or for taking that much needed holiday!
The interest charged on loans is known as APR (Annual
Percentage Rate). For Secured loans , it varies, depending
on personal details of the borrower (like credit history), the loan
amount, the loan term, etc. Although lenders are legally obliged
to familiarize borrowers with the effective APR and other costs
involved in taking up the loan, many of them, to fill up their coffers
involve hidden costs that increase the loan cost tremendously. Sufficient
collateral with good financial conditions will get you the best
interest rates and a more relaxing repayment option.
Converse will be the case if a borrower invokes insecurity with
the lender. A creditor will then respond with relatively high interest
rates, scrutinize the borrower’s case more minutely and decide
on repayment options, which he feels - will bring back his money
safely. When one applies for a secured loan, he signs an
agreement that is called a security agreement. This agreement reduces
interest, because the lender now has security against which he is
lending his money.
As secured loans are backed by collateral, most lenders approve
loans even in cases of CCJs, defaults, county court judgements and
arrears. This make secured loans very attractive to people who would
otherwise not qualify for a loan from their local bank. If a borrower
has exceptional credit history and good financial standing he can
expect amounts ranging up to 125% of his property value. All this
depends on how comfortable a lender feels with the borrower’s
collateral and credit history. People who have bad credit and disorderly
financial conditions might find it difficult to get even
a sum of 70% of the total value of their collateral. Thus, you can
avail of a secured loan even if you have bad credit history, what
you need to have is concrete property that can act as collateral
or security.
Benefits of Secured Loans:
The interest rate charged on secured loans
is the lowest because the risk borne by lenders is very minimal.
Repayment of secured personal loans is spread over
a greater time frame.
The Repayment period can vary from 3 - 25 years.
The interest for secured loans varies, depending on
personal details of the borrower (like credit history), the loan
amount, the loan term, etc.
Secured Loans offer flexible repayment
options that should be chosen carefully after shopping around and
comparing quotes.
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