Homeowner Loans

In a Nutshell...

• In homeowner loans, the borrower offers a property as an asset against a loan for the lender's security.
• This security means that it may be easier for you to borrow more than on an unsecured loan, even if you have adverse credit or other credit issues.
• You may be able to borrow up to 125% of the value of your property, although usually these loans range from £3,000 to £50,000.

What are they?

Homeowner or secured loans are a type of loan where the borrower offers an asset which the lender can seize if the borrower is unable to repay the loan. The asset will be the borrower's property. Loans secured against property that is already mortgaged are known as second charges, while loans secured against a property owned outright with no existing mortgage in place are known as first charges.

As a homeowner offering your home, you can borrow more money by showing the lender you're ready to use your house as security against the loan. Secured loans involve a bit more work to complete than an unsecured loan. This is because of the extra work involved in setting up the loan initially.

Why a secured loan?

A secured loan offers borrowers the opportunity to borrow more than with an unsecured loan. This means that you can finance the likes of an extension, a new kitchen or a car. Borrowers with a poor credit rating (such as mortgage arrears, CCJs or defaults) can still apply for secured loans and expect a competitive APR rate. The reason for this is that although you may have bad credit rating, lenders still have faith in you the borrower, because you're offering your home as security against the money they're lending.

Advantages

• The key feature of secured loans is that these are much easier to obtain because the loan is secured against the borrower's home. The lender has the added benefit of security, which provides protection in the event of a customer's inability to repay.
• Providing you have the equity within your property, a secured loan allows you to borrow a large amount of money. This is due to the lender having more trust in the borrower because of the asset secured against the loan.
• Those who are self-employed, have recently changed jobs or who have adverse credit can take out a loan.
• Secured loans also offer a longer repayment period. In fact secured loans are much like a form of mortgage. The loan term can be as long as 25 years if you choose.

How to apply

• To apply for secured loans, you primarily need to own your own home. You also need to have spare equity within your home to secure the loan against it.
• Lenders offer you the option of taking a secured loan via their branch network, over the telephone, via a written application or online through their website.
• Initial assessment of your application can be made quickly, however loans under £25,000 are regulated, and a 7 day consideration period will be given to allow time for you to assess the implications of the credit agreement, and to ensure that you are fully aware of all the terms and conditions.
• When assessing your application the lender will consider your income and financial commitments to determine whether you can afford to take on and repay additional finance. They will look at your past credit history and take into consideration any adverse credit such as mortgage arrears, defaults or CCJs. All lenders insist that where an applicant is married, both parties should be named on the application form.
• Lenders frequently use credit scoring facilities and credit reference agencies to assess your suitability.
• If you are refused a loan or wish to make enquiries concerning your own credit file you can apply to the credit reference agencies for a copy of your credit file. This service is subject to a small fee.

Costs and charges

Secured homeowner loans are available in varying amounts and for many different purposes, including debt consolidation. The amount available usually ranges from £3,000 to £50,000, although some lenders will consider lending up to £100,000. You may be able to borrow up to 125% of the property value. The amount borrowed is repaid monthly over a term agreed at the outset, usually ranging between three and twenty-five years. You might be charged a penalty for paying the loan back early.

Lenders charge an Annual Percentage Rate (APR) interest on the amount you borrow. The amount you can borrow, the term available and the APR will all depend upon the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances, for example any adverse credit. The APRs quoted by the lender will usually be typical rates, and these act as a guide only as the exact rate offered will be on an individual basis. You should compare the APRs of different loans, as this is a good way to determine how competitive they are.

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