Secured loans are offered against collateral. These loans are less risky for the lender so, they come with lower interest rates and easy repayment options. The borrower has to pledge his house or any other asset as the collateral. Secured loans can provide for massive amounts depending upon the value of the collateral. Hence, they are suitable to finance significant needs.
As the name suggests, a secured loan is a loan given to the borrower on a condition that he provides the lender with something as a security to the loan amount. Generally, the protection offered is the borrower’s home. The property pledged as the security is called collateral.
Secured loans are not risky for the lenders since they have something from which they can recover their loan amount if the borrower fails to repay. For this reason, secured loans are offered at lower interest rates than unsecured ones.
Secured loans are easier to get because of the collateral offered. The ability to provide collateral makes the secured loan accessible to a whole lot of persons. People who are otherwise unable to prove their creditworthiness can get a secured loan if they have something to offer as collateral for the loan.
Secured loans can be taken for a wide variety of purposes; in fact, any financial need can be fulfilled via a secured loan. Debt consolidation is one of the most popular reasons why people take a secured loan.
Depending on the value of the collateral offered the loan amount can range from £3,000 to £50,000. The lenders are not hesitant to provide a higher amount. If they are satisfied that the collateral is of sufficiently high value, they can even consider lending £100,000 or more.
The repayment options available with secured loans vary with lenders. Generally, they are based on the agreement between the borrower and the lender. The repayment period might range between three years to twenty-five years. A prepayment penalty may be charged if you repay the loan earlier than the agreed period.
The process of getting a secured loan has many costs associated with it. Since collateral is under question, the lender has to satisfy himself whether the value of the collateral is sufficiently high or not. If the collateral is your home, then he might have to get your property valued, and this will incur some valuation charges. Solicitor’s fees for preparing the legal agreement, the conveyance to the property site, and office charges are also included in the cost of getting a secured loan.
The process of applying for Secured Loans are relatively straightforward. Nowadays, many lenders are having their websites. A borrower can submit an online application for such a loan request. He can also submit his application over the phone or into any of their offices.
The process of getting approval for a secured loan is a little longer than the unsecured ones. The cause of the delay is the valuation of the property or collateral. The paperwork that has to be done in pledging the collateral also takes time. Lenders will also take the help of credit rating agencies to get a clear picture of your credit history. All these formalities will be completed within a few weeks, and you can hear about your loan within 30 days of applying.
Every lending institution has a legal obligation to inform you about the interest they will charge on your loan. The APR (Annual Percentage Rate) is the most suitable indicator of this factor. The APR charged from you will depend upon your creditworthiness and equity in the property. The borrower should try to get the loan with the lowest APR since it will help him pay the loan quickly.
Taking a loan is a legal process and brings financial liability to the borrower. While taking a loan, a credit agreement has to be signed. The terms and conditions of which are binding on both the borrower and the lender. This fact itself should encourage the borrower to get into the minutest details of the loan agreement and get everything clear before signing on the dotted line.