Fast Secured Loans In The UK
In the past one way of borrowing money would have been to use the services of a pawn shop. Pawn
shops work by taking an item of value from you as security, for example a watch or piece of
jewellery, and then lending you money based on the value of that item. You would then need to
pay back the money borrowed plus an agreed fee or interest payment; once this had been done they
would return the item to you.
If you failed to make the repayments as agreed, the pawnbroker would sell the item to regain his
Although pawnshops do still exist, homeowners these days have the option of taking out a secured
loan, sometimes called a homeowner loan. In the UK, secured loans actually operate in a similar way to
traditional pawn broking. The lender (normally a bank or building society), agrees to lend you
some money, on the basis that you will pay it back over an agreed period of time. However, instead
of the borrower taking an item to a shop, the loan is secured against the person's house.
This works by the lender placing a "charge" on the property with the land registry. This means
if the homeowner subsequently does not repay the loan, they are able to force them to sell
the house and take their money back from any profit generated. It is important to remember that in
the majority of cases the secured loan will be the second charge on the property. The first
charge will be the mortgage itself, which is owned by the mortgage company. Therefore in the event
of a sale, the mortgage company would reclaim their outstanding money first, and the secured lender
would claim their money second. Any money left after this would be paid to the homeowner. This
applies even if the homeowner decides to sell the house voluntarily because they have decided to
move house for example.
Of course, for a secured loan to be agreed, the lender must be confident that if the loan is not
repaid, there will be enough profit for them to reclaim their cash should the property be sold.
This profit is known as "equity". Therefore before a secured loan is granted the lender will want
to value the house and know how big the outstanding mortgage is.
For example, if a house is valued at £200 000, and has an outstanding mortgage of £150 000, there
is £50 000 of equity available. i.e. when the house is sold the mortgage company would take
their £150 000 and this would leave a balance of £50 000 less the fees for selling of course.
Now because there is £50 000 of equity in the property, the secured lender will not give a
secured loan of £50 000. This is because there could be a difference between the valuation they
have and the actual price that is received when the property is sold, and because property prices
can go down as well as up depending on the economy.
This has not always been the case though and is part of the reason for the collapse of the world
economy. Banks and building societies were prepared to lend up to 125 per cent of the value
of a house, because they were confident that within a few months the value of the house would have
increased. In the current market this is definitely not the case, and property prices are
either remaining the same or falling. This means that secured loans are much harder to obtain.
Secured loans are granted based on something called the Loan To Value (LTV)
ratio. This tells the lender how much equity would be available should they decide to lend the money. It is calculated
as (available equity plus requested loan/house value) x 100. In the above example, where there is £50 000 equity available
and the property is worth £200 000, 75 per cent of the equity has already been accounted for - (150 000/200 000) x 100 equals 75 percent.
Lenders are currently only prepared to lend an absolute maximum of 90 per cent LTV, and this is only
for people with an excellent credit rating. This is unlikely to change in the foreseeable future.
Therefore using this example, the maximum secured loan obtainable would be £30 000.
150 000 plus 30 000 is £180 000. (180 000/200 000) x 100 equals 90 per cent.
So given that if you fail to pay back the loan you could be forced to sell your house, why do
people bother to take out home secured loans rather than personal or unsecured loans?
Well, because the lender is sure to get their money back even if you do not make the repayments,
they are taking less of a risk than with a personal loan. Personal loans are not secured on
anything, so if you fail to make the repayments, then the lender will have to chase
you for the money through a debt collection company or through the court.
This means they will not only lend more money for a secured loan than they would for an unsecured
loan, but also at a lower interest rate. The interest rate charged is based on the amount of
risk the lender thinks they are taking. The lower the risk the lower the interest rate and vice
versa. This means that secured loans are the cheapest form of borrowing.
In recent years, cheap secured loans have been easy to obtain, and there has been plenty of unsecured lending available as well. However, since the economic crisis,
there is virtually no unsecured lending available, as lenders are no longer prepared to take any risk.
In fact virtually the only unsecured lending available is to people who actually own property and also have a very good credit rating.
This is because if you subsequently fail to make the repayments, the lender will apply to the court to place a charge on
your property, effectively securing it as if you had taken out a secured loan in the first place.
Of course everybody wants a cheap secured loan, however the cheapest loans are only available to people with the very best credit rating.
However, secured loans for people with a bad credit are available, providing they have a
property of course. These people will not get the cheapest loans available, simply because as
explained above the lender will see them as a bigger risk and therefore charge a higher rate of
interest. The bottom line is, if you have bad credit you can still get a secured loan, however you should expect to pay more for it.
One thing which greatly damages your credit rating is missing a mortgage payment, and therefore
this should always be your priority if you are struggling financially, rather than other unsecured
Comparing Secured Loans OnLine - The Problem
There are lots of websites, which enable you to compare secured loans online. Many of these also have secured loan calculators as well, which can be useful for working out
your monthly repayment. However, these can lead you into damgaing your credit rating if you are not careful.
These loan comparison websites will normally display the loans with the best rates first. It is obvious that everybody will want the cheapest secured loan they can get, and therefore
will probably apply for the first one in the list. However, less than 5 per cent of the population will actually qualify for the loan with the best rate. The problem though, is that whenever you make a loan application, the lender will run a credit search, which will leave a footprint on your credit file. So in many cases, consumers will apply for the cheapest loan, get turned down and then apply for the next loan in the list and so on. Now, if you get a lot of footprints in a short period of time, it will damage your
credit rating, as it will look to a potential lender that you are desparate for credit. Therefore, if you know you have a bad credit rating there is no point in applying for the cheapest loan on the market, as you will only make matters worse.
Understanding your credit rating BEFORE you make an application is therefore important, because as mentioned this will affect the
interest rate you will be offered. Once you understand your credit rating you need to be
realistic about the type of loan you will be offered. If you have missed payments on other loans
or have a CCJ for example, you cannot expect to be offered the cheapest secured loans on the market.
Use Credit Jungle to get check your credit score, its absolutely free. If you then want to apply
for a loan, we will find the cheapest loan for you based on your own individual credit score, so you only need to
make one application, and can be confident that this is the best rate for you.