Representative example: Assumed borrowing of £18,000 over 120 months, with a fixed borrowing rate of 6.5% per annum for the first 60 months, followed by 60 months at the lender’s standard variable borrowing rate of 4.95% above Bank of England Base Rate. There would be 60 monthly instalments of £227.38 followed by 60 instalments of £221.71. Total amount payable £26,945.40 comprised of; loan amount (£18,000); interest (£6,920.40); Broker fee (£1,530); Lender fee (£495). This would result in an overall cost of 9.1% APRC
Warning: Late repayments can cause you serious money problems. For more information see our debt help guides.
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Secured loans, also referred to as home loans, second-charge mortgages or homeowner loans are a special form of secured loan attached to your property.
Homeowner and secured loans are all about borrowing a large sum of money, typically from £35,000 onwards. This is because normal unsecured personal loans are usually only available up to £35,000.
The loan amount you can borrow through a secured loan will depend on the value of the equity in your home, your credit score, your income, and your financial commitments.
For example, if you live in a £400,000 home, but have a £370,000 mortgage and a poor credit score, it’s unlikely you’ll be able to borrow the maximum amount typically offered by secured loans of £100,000.
The main advantage of a secured loan is the amount of money you can get access to at relatively short notice. What’s more, the interest rates on offer are fairly typical, and comparable to smaller loan amounts. Finally, you’ll pay off the loan in a series of regular payments, meaning you should be able to plan your repayments accordingly.
The main disadvantages are related to the huge risk in taking out a homeowner loan should you fall behind in your repayments. If you fail to keep up your payments on a normal loan it will damage your credit score, lead to a repayment plan and, in the worst case, end up with you declaring bankruptcy.
But with a homeowner loan the downsides are far more acute. Failing to maintain your payments on a homeowner loan could mean losing your home. That means you should only ever consider taking out a secure loan if you are sure you can maintain your payments, have access to another source of credit in the event of an emergency, or have no other option.
What’s more, the main benefit of a secured loan – namely the huge size of the loan you could potentially get – is entirely contingent upon your credit file, which will impact the interest rate you are offered.
Finally, homeowner loans may also be subject to high upfront fees.
The main alternative to a secured loan is to remortgage your property, although this still means the same risks and dangers apply. If you have a large amount of equity in your home you may be offered a very competitive rate, but you must at all costs keep up your repayments.
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