Hond Financial

Posts Tagged ‘secured loan’

What is an unsecured loan?

Borrowing money without providing the lender a security (such as a property or vehicle).

What is a secured loan?

The lender secures the loan against an asset such as a property or vehicle. If you fall behind with the loan payments, the lender can take possession of that asset.

TRUE OR FALSE: Secured loans are safer than an unsecured loan.

FALSE: Borrowers assume that secured loans are safer than unsecured loans. However, secured means safer for the lender, not the borrower. Therefore your asset such as your home or vehicle is at risk if you fail to make the regular repayments of the loan.

TRUE OR FALSE: Unsecured loans have no risks.

FALSE: If you own your home, but fail to make regular payments on the unsecured loan, your lender may be able to secure a charge order against the property. This means when your property is sold, the debt will have to be paid from the proceeds of the property sale.
If a charging order is successful, the lender may also apply for an Order for Sale. If this is granted as well, then the process is almost the same as if you had obtained a secured loan against your property, which means the forced house sale can result to settle the outstanding debt.

TRUE OR FALSE: You pay more interest for longer term loans.

TRUE: Spreading payments over 10 years versus 5 years, the regular payments will be smaller, but you will end up paying more in the long run due to the additional years involved.

Things you should find out before taking out a loan:

Paying off a loan quicker will save money in the long run, make sure the loan can be paid off early without incurring any early redemption charges.

Understanding the interest rates tiered banding rates could save you money since tiered rates are more competitive as the amount you borrow crosses over different bands .e.g. 9999.99 versus 10000.01.

Taking short holiday’s from your repayments is normally a false economy as you tend to still be incurring interest on the debt, therefore, you either have to pay more or over a longer period of time.

Alan Parker provides Financial advice to help people with their debt and wealth management solutions.

To learn more about loan and debt management, Loan options post credit crunch, visit my web site now. Read about what options are available to you if you need to borrow money to pay for a home renovation project, wedding, education, purchase a new car, and so on.

Unsecured versus Secured loans options

From time to time people will find themselves in need of a loan, whether it is because they need to fund a home improvement project, education and university costs, offsprings are getting married, the list goes on and on. Unfortunately, since the credit crunch, banks have been less forthcoming to lend money due to a number of factors such as recession, falling property prices, negative equity and rising unemployment; this has meant the number of products available and options is now limited.

What are the important differences between secured and unsecured loans?

Secured loans are normally taken against an asset such as a property or vehicle, in the event repayments are not made, then the property or vehicle may be at risk. Suffice to say, banks and other lenders are often more willing to give you a loan if it is asset backed.

Cheap, unsecured loans are also becoming harder to come by from the height of the credit boom. Due to the credit crunch and subprime fall-out, lenders have become more selective about who they will lend to and people with a bad credit history may find that they are unable to obtain a loan or are offered an uncompetitive rate.

Don’t give up just yet, for those wanting to borrow smaller amounts over shorter periods, an unsecured loan can still be found since the risks are smaller for the banks.

Pros and Cons

Unsecured personal loans are available for a range of different amounts and repayment terms. Larger loans can usually be taken over longer terms, for example between seven and 10 years, and there is normally a  maximum you can borrow with this route.

Some lenders do offer flexibility by allowing for over-payments and lump-sum payments, both of which allow you to repay the debt quicker than the term (please read the loan application small print as this varies from lender to lender).

With secured loans, the amounts are usually higher, depending on their perceived asset valuation and potential risks of defaulting on the payments. As with unsecured loans, the amount borrowed is paid monthly over the agreed term (note, if you do opt for a secured loan, then any assets used against the borrowing could be at risk if you fall behind on your payments). Again as with unsecured loans, some lenders do other flexible over-payments so that the term date is reduced.

If you fall behind with unsecured loans this could affect your credit rating and ability to borrow in future.

Before deciding how much to borrow, you should work through you monthly income and outgoings to ensure your repayments are within your means, don’t forget to factor in the annual items that tend to be paid off in one go. A number of online income calculators are available which you can use to understand your monthly cash flow requirements.

Debt consolidation

In recent years, it has been quite popular to consolidate all exist debts into one lump some, this reduces the admin costs and as the sum is normally higher, can result in savings due to the interest charges being more competitive. Please make sure you understand if there are costs to exiting an existing loan before the term is complete as this may have a penalty close.

Which is most suitable for me?

If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan.

If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan – as long as you are a homeowner of course.

Secured loans are also useful for larger amounts or where the applicant requires a longer repayment period.

Otherwise, an unsecured arrangement may suffice.

What are the alternatives?

If a relatively small amount is required, then a credit card may be a cheaper option. With many deals offering interest free periods on balance transfers and purchases, borrowing on a credit card could potentially be cheaper than a traditional secure/unsecure loan. Additionally, some providers charge a balance transfer fee, to move debt from one card to another.

If you are a homeowner and are looking to borrow more than a few thousand, then remortgaging your home is an option.

Mortgage rates are currently at historic lows, however, releasing equity in your home is normally more expensive due to the higher administration costs involved.

Secured loans are also likely to work out cheaper than remortgaging for homeowners who face stiff penalties to exit short-term, low-rate deals. If, for example, you are part way through a mortgage loan, you would normally have to pay percentage of the annual mortgage repayment to exit the current deal.

Mortgage lenders are also tightening their process in the aftermath of the credit crunch, meaning that low-cost remortgage deals are no longer readily available.

What if I have a bad credit rating?

All is not loss, with the so many resources on the internet such as financial product comparison websites, direct finance companies, etc, personal finance and the process of finding a bad credit loan has become quicker and easier than in recent decades. There are a number of specialist lenders on the maret that concentrate on bad credit rating loans, however, you should be aware that these tend to be more expensive due to the additional risks the lender will need to consider.

Alan Parker is a Finance expert who provides help to people looking for a loans as well as helping individuals maintain and build net wealth.

To learn more, visit my webpage Loan options post credit crunch now. Read about what options are available to you if you need to borrow money to pay for a home renovation project, wedding, education, etc.

The secured loan industry that used to be so buoyant is a shadow of it’s former self. The number of these homeowner loans being written by secured loan lenders is more than 80% down on 2007.The secured loan industry is ailing and on it’s knees. There used to be a good number of secured loans brokers offering the excellent homeowner loan product for all purposes including for using this form of home loan as a debt consolidation loan. Now there is only a handful of these lenders left, and household names such as First Plus have disappeared from the market.Hundreds of secured loan brokers have sadly closed their doors never to reopen them again. This does not make it impossible to obtain a loan, as the handful of lenders remaining have funds available and are only to ready and willing to lend.Therefore if you are considering a secured loan the best way to proceed is to contact a secured loan broker whose name can be found on the internet and they can arrange everything for you.Alternatively check out the local as well as the national newspapers who sometimes carry adverts for these brokers.They are experts in their field and well versed in what products are still available. They know all about the LTV s that are now acceptaabl, the intererest rates, the information that you will have to provide to the secured loan lender as the required information can vary between one lender and the other.Secured loans, contrary to what many people think are still available, and the best person to discuss the possibilities of your secured loan with is a secured loan broker or IFA who can arrange everything for you, and all you have to do is sit back and wait for the arrival of your secured loan cheque.

Prior to getting a loan, you have to ensure first that you understand the kind of loan that you are getting yourself into. Although loans might be a huge aid during this worldwide crisis, you still have to understand the basics of loan before you get one.

There are different kinds of loans, but you have to understand two important kinds of loans – the secured and the unsecured loan.

The Secured Loans

Mostly, what the secured loan means is that you have to offer something as a collateral before your loan is granted. The collateral that you can utilize should be an asset to you, and this can be your vehicle or your home. Of course, the bank will still have to verify the assets that you have presented to them, and in case you failed to pay for your loan, the lender can collect your assets as agreed upon in the contact.

The secured lån are best if you are in need of a huge amount of money to purchase, for example, a car, and you can use the car that you are going to purchase as the collateral to obtain your loan. This type of secured loan is the home equity loan.

Now, the secured loan offers the lowest rate of interest, and aside from this, the borrower will also be offered a longer period of time to pay back the debt because the lenders are secured knowing that you will not fail on their promise to pay your loan, especially if you do not want to jeopardize your property.

The Unsecured Loans

Alternatively, the unsecured loan is the total opposite of the secured loan. In the former kind of loan, you do not have to use any collateral just to get a loan, so you are not at risk of losing your assets or properties. In the unsecured loan, too, the lender has to place their trust and belief in you that you are going to repay your debt, and this is the reason why it is oftentimes hard to get an unsecured loan, even if you have a good credit profile.

Apart from the difficulty of getting an unsecured loan, the interest rates of unsecured lån are also higher than the other type. Furthermore, the repayment period is shorter and the borrowing sum is lower, too.

So what is a homeowner loan?  As the name indicates it is a personal loan just like any other with the exception that rather than getting a loan from a lender with the promise of legal action if you fail to pay, you would put your home down as collateral.  This would mean that you are agreeing with the lender that if you fail to make the agreed repayments every month then they can repossess your home.  Your house would then be sold, the mortgage lender would claim their money back and then the homeowner loan lender would take what is owed to them along with adminstrative costs.  You get anyting that is left.

I know, it doesn’t make homeowner loans sound very attractive does it?  You might be asking, what is the point of a homeowner loan?

The homeowner loan is a far more attractive proposition for the lender because they know that with a secured loan the risk is greatly reduced for them and therefore you are seen as having more potential for lending to.  You will also be able to find a more attractive low rate apr for your loan.  If you have had problems with debt in the past and now have bad credit you will almost definitely have difficulties being accepted for loans but if you have your own home your credit rating almost becomes meaningless.  It may still affect the amount of interest you pay but you will find it far easier to get your application accepted.

The loan company will obviously need to know quite a lot of details before they agree to lend you money.  You will need to provide evidence of owning your home for example so have your documents ready along with any other documents that you thing may be relevant.

So it really is up to you to decide whether or not the positives out weigh the negatives.Only you can decide how badly you need that money?  If you are only looking for some quick money so you can pay for that holiday or just because you fancy a new expensive gadget for example then maybe it isn’t really worth putting your home at risk for.  However, if it is for medical costs or to consolidate your existing borrowing then homeowner loans might be the right choice for your circumstances.