If you are looking for a comparatively rapid cash injection, taking out a secured loan against an asset that you own can be a great solution. Homeowners can access funding streams they thought impossible through this approach, and resolve any number of short-, medium-, or long-term concerns.
Here are 10 compelling reasons to consider a secured loan to meet your financial needs.
Secured loans are often preferable to remortgaging
If your mortgage has early repayment charges, but you’re looking to raise money, a secured loan allows you to borrow while retaining your existing mortgage.
This means avoiding costly early repayment charges and even work out cheaper if it allows you to retain a low interest rate.
Bad credit does not need to be a barrier to secured loans
Opportunities for unsecured loans and remortgages are often restricted by your credit score. If you have an exemplary and clean credit history, you will have your choice of lenders.
If you have experienced any kind of financial difficulty in the last six years, and your credit score has bombed as a consequence, you may find your request for funding difficult to fulfil.
As secured loans place an asset on the line as collateral, lenders are considerably more flexible when considering providing a credit line. Rather than rejecting your application outright based on your credit score, decisions surrounding secured loans are based on affordability.
You’ll need to explain your previous credit problems, and show that you are capable of meeting the financial obligations laid out by your secured loan arrangement. This greater flexibility afforded by this lending stream will be very welcome to anybody that is weary of facing consequences for problems in their financial rearview mirror, though.
You can borrow more with a secured loan
Unsecured loans are frequently capped at £25,000. That sounds like a lot of money, but if you need more, it’s not always going to be helpful. Secured lending can run into seven figures, provided you have the appropriate equity in an asset.
Most lenders will allow you to borrow at least 90% LTV. This means that somebody with £1,000,000 and £500,000 mortgage could borrow as much as £400,000. Depending on the lender in question and your credit rating, you may be invited to borrow as much as 100% of an asset’s value – though this will likely result in higher interest rates.
Find out more – Secured loan affordability
Self-employed people find secured loans easier to get
In the modern world, an increasing number of people are self-employed. That offers greater personal flexibility, but it can place many roadblocks in any attempt to gain financial assistance. If you have been self-employed for less than three years, many mortgage lenders or unsecured loan providers will not agree to any kind of borrowing.
As always, the options are greater when you take out a secured loan. You are unlikely to gain access to this line of borrowing mere months after setting up a business, but the ability to use personal assets as collateral reassures lenders a little, and you’re much less likely to have your application declined outright.
Secured loans have lower interest rates than unsecured loans
One of the great attractions of secured loans is that you will likely be offered a much lower interest rate than an unsecured counterpart. In the eyes of a lender, the risk attached to a secured loan is considerably lower than on unsecured borrowing.
The interest rate you will be offered will still depend on your personal circumstances, including your credit score. However, an interest rate on secured borrowing considered on the higher side can still be up to 10% below what you’ll see on an unsecured offer.
Consolidating debt can reduce your monthly payments
Multiple different debts mean that you’ll be paying a variety of interest rates. This means that you could be paying quite substantial sums every month to service these debts, and if you are close to your credit limits, much of this will be ‘dead money’ that exclusively services interest rates.
You will not be making headway into what you owe in this instance; you’ll just be making your lenders wealthier. By consolidating your debts into one monthly secured loan payment, and clearing these accounts so you are not on the hook for high APRs, you can drastically reduce the amount you pay every month.
Secured loans can heal your credit score
If you’re carrying numerous unsecured debts, higher interest payments are not your only concern. Your credit rating will also suffer, which can make it difficult to secure lending and funding in the future.
Multiple different factors influence your credit score, and taking out a second charge mortgage can help improve each of these elements. Two key things to take under advisement include:
- The more open credit contracts you have against your name, the more your credit score will be impacted. Consolidating all debts into one repayment means you’ll have considerably fewer – if any – unsecured debts.
- Multiple lines of credit will have numerous payment due dates, and it can be a juggling act to keep on top of them. If you miss a payment deadline on a credit card, it can impact your credit score for some years. Only having one payment to remember makes this less likely.
The higher your credit score, the likelier you are to qualify for a better mortgage interest rate when the time comes to remortgage.
Secured loans can be used for any legal purpose
If you’re looking to obtain finance through an unsecured loan, you will need to explain why you are taking out the agreement. There are some restrictions on unsecured lending. For example, if you are looking to borrow money to settle an outstanding tax bill, you may find your application blocked. This is not the case with a secured loan.
An unsecured loan could be used to pay for a one-off personal purchase, finance business expenses, invest in a second property, settle outstanding tax bills – just about anything that is legal. As long as the lender is satisfied that you can keep up with repayments, they are largely unconcerned about how you use the money.
Repayment terms on secured loans can be much longer
Most unsecured loans have a maximum repayment term of 5-7 years. In most cases, repayment terms will be capped at five or six years. Having less time to make settle your balance, especially at the higher interest rates associated with unsecured borrowing, means that you’ll face higher monthly repayments.
Secured loan repayments can be spread over a considerably longer period. If you are aged below 40, you’ll likely be invited to repay your loan over 25 years. This does mean the loan may cost you more overall – you’ll be paying interest for longer, after all – but it can keep the monthly sums owed much lower.
Secured personal loans can be used for business purposes
We previously discussed how secured loans are easier to source for the self-employed. They’re also easier to find than business loans for a fledgling company – and likely to attract much lower interest rates. Business loans tend to be costlier than their personal counterparts, especially if your corporate identity has not yet built much of a credit profile.
If you run an SME, you can use funding secured through a personal secured loan to purchase assets for your business, lay down a deposit for a trading premises, or even sustain payroll to keep your employees happy and motivated during lean times. When your business starts to flourish, you can even consider repaying the secured loan early if you’re happy to accept associated exit fees.
These are just some of the reasons to consider a secured loan.
If you feel that you would benefit from such a lending stream, get in touch with ABC Finance. Our friendly and experienced team are waiting to take your call, and will not hesitate to answer any queries you may have.