Secured loans, also known as homeowner loans and second charge mortgages are a great option for those who own a property to raise funds when required. Secured loans are also popular among small business owners and investors who want to use their money for their business..
Secured loan interest rates and fees are usually very low, but finding the right deal is crucial as there are often big differences between each lender and broker. This guide will help you understand what a secured loan is and how they work so that you can make an informed decision on whether or not to take one out.
What is a secured loan?
A secured loan, also known as a homeowner loan or second charge mortgage is a type of loan that sees the lender take security over a property in return for granting a loan. This means that if the borrower fails to pay the secured loan back, the lender can take ownership of the assets and thus have the right to get their money back.
What are the secured loan interest rate types?
There are four main types of secured loan interest rates you’ll need to know about to ensure you’re taking out the one that’s best for you.
1. Fixed Rate
Fixed-rate loans are backed by a specific interest rate that is not going to change for a set period of time. These are the most common types of interest rates on secured loans.
2. Variable Rate
Variable rate loans are based on a the lenders Standard Variable Rate. They could go up or down over time according to market interest rates, or lender preference. This makes them a bit riskier for lenders because they have less certainty about their return.
3. Tracker Rate
The third type is the tracker rate. This is a variable rate that is based on a specific index. Usually, the index is the Bank of England base rate. This means that the rate is going to be changing over time with changes in the Bank of England Base Rate.
4. Discounted Rate Secured Loans
The last interest rate type is known as a discounted rate. Discounted rates usually work by offering a discount on the lenders Standard Variable Rate (SVR). While you’re paying less than you would on the SVR, you’re still at risk of unexpected interest rate rises.
Which type of interest rate is best for secured loans?
Fixed rates are best for those who want to know how much they’ll pay each month. If this isn’t a concern, then simply choosing the lowest interest rate is the best approach.
How can I get a lower rate on my secured loan?
The best way to get a lower secured loan rate is by borrowing at a lower loan to value (LTV). Reducing the LTV reduces the risk to the lender and will open up products with lower interest rates.
If you have a history of bad credit, repaying any outstanding defaults and CCJs may allow you to borrow at a lower rate.
Which lenders currently offer the best-secured loan rates?
Below are some of the best lenders that offer secured loans with great interest rates and other perks. These are just examples, of course, and there are many different lenders out there. You can search online to find the best rates available in your area.
The following rates are calculated on a £20,000 loan over a ten-year repayment term.
|Secured Loan Lender||Rates From|
|United Trust Bank||3.85%|
Will I have to pay other fees?
Yes, most secured loans will charge some kind of fees surrounding their financial products for certain reasons. Let’s take a look at some of them now.
1. Lender Arrangement Fee
A lender arrangement fee is a flat fee that lenders will charge you to lend your money. All lenders charge arrangement fees when setting up a homeowner loan, but the size of this fee will vary depending on the lender and product you choose. This fee can vary from lender to lender, but typically it will be around 0.5% to 5% of the total loan amount.
If your lender arrangement fee was 3%, this means that for every £100,000 you’re taking out, you’ll be charged £3,000.
2. Broker Fees
A broker fee is a fee charged by the lender to arrange your loan. The fee that you’re charged will vary depending on the broker that you choose, with some brokers charging between 10-12.9% of the loan amount! We charge a flat fee of £995 when arranging a secured loan.
3. Valuation Fees
A valuation fee is a fee that is charged to assess the value of your property. It’s the cost of creating a report that details the condition and value of the property. In some cases, this fee may be avoidable, where the lender is willing to undertake an automated, or desktop valuation. An automated valuation simply sees an automated system place a value on your property based on the property type, the number of bedrooms, local sales data and your estimate.