Secured loans are an option (along with a remortgage and personal loans) to raise extra finance, for a variety of reasons. They are sometimes called second charge mortgages due to them sitting behind the main 1st charge mortgage on a property.
They are considered more flexible than a traditional mortgage so the secured loan can be used to raise money for a wider range of purposes and the amounts available to borrow are usually substantially higher than unsecured lending.
Why a secured loan instead of remortgage?
One reason you might look at a secured loan over a remortgage is if your main mortgage has ERC’S (early repayment charges). To remortgage your home and repay the charges may end up being more expensive than taking out a secured loan and paying a slightly higher interest rate over the period the ERC’s are in effect.
Another reason might be because of why you are raising the money. For example mortgage lenders usually do not like money being raised for purposes such as repaying tax bills or for business purposes, whereas a secured loan could be used for either of those and many other reasons.
A secured loan is usually quicker to complete than a mortgage and easier to obtain, with the lenders more willing to lend to those who have poor credit scores or reports.
In either scenario it worth talking to a mortgage adviser who should go through the costs and work out whether the secured loan is the most economical way to raise the funds over the chosen term.
Secured versus Unsecured (Personal Loans)
Pros of a secured loan:
Secured loans are available for larger amounts than personal loans
Secured loans are available to those who have impaired credit history.
Repayments terms can be longer than unsecured loans, up to 35 years, helping with affordability.
If you opt for fixed monthly payments then it should make it easy to manage your repayment plan.
Cons of a secured loan:
You need to keep up repayments on a secured loan or you could risk losing your home.
Fees tend to be higher and charges such as early repayment penalties can cost you extra if you repay early.
Pros of unsecured loans:
Unsecured personal loans are widely available and quick to get a decision on.
Some loans offer the option of a payment holiday of say two or three months at the start.
The best loan rates are generally for borrowers looking to make repayments over three and five years, meaning you will often pay a higher interest rate to borrow over a shorter term.
Cons of unsecured loans:
The interest charges on larger or smaller amounts can prove expensive.
Top deals are only open to those with high credit scores.
How to get a secured loan
If you use a whole of market mortgage adviser they will have access to the entire market place for secured loans, they should also run through your options and compare the costs of the secured loan to that of a remortgage and personal loan to make sure you are going with the best option.
Secured loans use affordability models that are similar to a traditional mortgage so you will need to prove income to make sure you can afford the monthly repayments. You will also need the same documents and a list of those can be found here.
Your home may be repossessed if you do not keep up with repayments.