What Documents Do I Need For a Secured Loan?

What documents do I need for a secured loan?

Every loan provider will have different requirements, and as we’ll discuss shortly, some will ask for more information than others. As a rule, expect to be asked for the following documents at the onset of your application:

• Photographic proof of your ID. A valid passport is the most failsafe option here, but many lenders will also accept a driver’s licence.
• Proof of your address. This will usually need to be a utility bill dated within the past three months, sometimes two. Most lenders will not accept a mobile phone bill, so send a mortgage statement or council tax bill. If all else fails, see if you can print off a loan or credit card statement.
• Proof of your employment status and income. If you’re a full-time employee of a business, this could be your most recent payslip. If you’re self-employed, use your tax calculation document (sometimes referred to as an SA302) – you can download this from HMRC’s website.
• Proof of ownership of your home. The aforementioned mortgage statement may do the trick, although many lenders will simply check this online.
• No less than three months of bank statements, so your incomings and outgoings can be reviewed.

Some lenders will also ask for a copy of your credit report, though this is not a given regarding secured loans. If this is necessary, the lender will inform you which credit reference agency they use – it will usually be Equifax, Experian, or Trans Union.

You can get a free preview of your credit score on a site like ClearScore, and sign up for a free trial with a CRA to see your full report. It’s worth reviewing your report before applying for a secured loan, as if there are any inaccuracies you can get these corrected ahead of time and bolster your chances of getting the best deal possible.

While a poor credit score does not necessarily preclude you from getting a secured loan, it could mean you receive a less favourable interest rate.

Finally, most lenders will ask for written permission from your mortgage provider to take out a secured loan. This is known as consent to a second charge. Your lender does have the ability to refuse this if they feel that you’re at risk of default or are unhappy with your previous account conduct.

What information does a secured loan lender need to know?

Before agreeing to a secured loan, your lender must understand the risks involved. Yes, a secured loan means lenders can reclaim their outlay by taking a borrower to court if necessary, but that will only ever be a last resort. If a lender thinks you will struggle to keep up with your repayments, they are unlikely to approve the loan.

A lender asks for so much information from you because they need to know the following.

• You are who you say you are, and you are not attempting to make a fraudulent application under somebody else’s identity or using an address you are not affiliated with.
• Confirmation of your age. If you are 25, you are much likelier to be accepted for a 30-year repayment term than if you are 45. The older you are at the onset of the loan, the closer you will be to the national retirement age, which could raise questions about your ability to make repayments toward the end of the agreement.
• Your claims of how much equity you have available in your home match the figure given by a surveyor or online valuation, and that nobody else is named on the property deed and could thus dispute responsibility for the loan.
• That you can make the repayments each month without financial hardship. This means proving your income and that your employee salary matches your claims, or that your self-employed income is not being exaggerated.

The latter is arguably the most important. You may be asked to explain some of the entries on your bank statements, especially incomings unrelated to your salary. The lender will seek assurance that you are not reliant on borrowing money from other sources to make ends meet.

You may also need to produce a business plan if you are self-employed, demonstrating that you expect to continue earning a steady income and have contingency plans in case of unexpected external challenges.

Do some secured loan lenders ask for more documents than others?

Yes, especially if you are applying for a loan with a lender that offers the lowest possible rates. These creditors will be risk-averse and only agree to work with customers with exemplary financial histories.

This means such lenders will be more precise, and you may find yourself rolling your eyes at the detail they look to go into. Your patience and willingness to meet expectations will eventually be rewarded with an interest rate unavailable elsewhere.

What can I do to speed up my secured loan application?

The short answer is to provide everything you have been asked for as soon as possible and always be on standby to answer questions. Do not leave unread emails in your inbox or ignore phone calls from your lender.

Doing so will push you to the back of the line when it comes to your application, and a process that should take weeks may end up lasting for months.

Do not attempt to hide anything in your financial history from a secured loan lender either. Any issues you have encountered will be uncovered, and an explanation will be sought. If the lender feels that you were trying to prevent them from discovering these problems, it will reflect poorly on your application.

You can also head off any questions at the pass by explaining issues in your past ahead of time. If there is anything in your credit history that may raise an eyebrow, clarify why these situations arose.

For example, late or missed payments on a credit card will likely be forgiven if you explain that you were a few days late due to a one-off issue that is unlikely to repeat, it may be seen as less of an issue.

Transparency is especially important with major concerns, such as defaults, CCJs, and IVAs. These issues in the past will not necessarily prevent you from obtaining a secured loan, especially if they were over three or four years ago. If you have settled your debts and these remain on your file ‘in name only,’ so much the better. Explain why you found yourself in these situations in the first place – and, more importantly, why you are confident it will not happen again.

Keep reading – The Advantages and Disadvantages of Secured Loans