Many Brits take out secured loans every year for a variety of different reasons. Those reasons could be to buy a new house, to purchase a new car, to carry out home improvements, and more. When people think about secured loans, they tend to think about borrowing large sums of money and paying it back with interest over many years.
And that’s still true. However, the secured loans market has developed a lot in the last ten years and it offers borrowers much more choice than ever before. However, here at LoanBroker, we’ve taken the conscious decision not to introduce our clients to secured loan lenders. In this article, we’ll tell you exactly why we made this choice.
Benefits of a secured loan
A secured loan means that you put something of value up as “security” in exchange for taking a loan out. If you pay the loan off on time and in full, you get to keep the security you offered. If you don’t pay the loan off and you end up defaulting, a secured lender can take that thing of value away from you permanently.
The security you offer could be your house, your car, expensive items around your home, and so on.
Because there’s something of value at stake, lenders charge much lower interest rates than a loan where you don’t have to offer any security. That’s because a lender can sell your thing of value to pay back any arrears left on the loan.
Disadvantages of a secured loan
Other than the risk of losing something forever that’s valuable to you, some secured loans available to borrowers aren’t that cheap. It depends on who you take a loan out with, how much it’s for, and what you offer as security.
Sometimes too, if you default on a loan and the lender sells your security, the amount they sell it for might not cover the value of the outstanding amount. If this happens, you will still owe your lender money which they will expect you to pay.
Where can you get a secured loan from?
You can find pawnbrokers both on the High Street and on the internet. Pawnbrokers can take virtually anything as security – from video games to jewellery to televisions to cars.
The amount of money they will lend to borrowers ranges up to around £10,000. Please note that you may wish to deal with a high street pawnbroker over an online pawnbroker to mitigate the chances of being involved in a scam.
Logbook loans are secured on cars and vans and they work slightly differently to other types of secured loans. With a logbook loan, ownership of your car or van passes to the lender before you take the loan out. As part of your repayment plan, you are allowed to continue using the car as long as you keep up repayments. Once you have paid the loan and the interest on top back in full, ownership of the car transfers back to you.
You can borrow up to 75% of the value of your car with a logbook loan. There is currently concern about the way that logbook loan companies behave towards borrowers and the Financial Conduct Authority, at time of writing, is investigating the sector. The financial watchdog is attempting to discover whether logbook loans and logbook loan companies need the type of strict regulation imposed on payday loan and short-term loan companies.
PCP and hire purchase for cars
Another popular form of vehicle-based secured lending is personal contract hire (and to a lesser extent, hire purchase).
As with logbook loans, a lender can take the car back from you if you don’t keep up with repayments.
The biggest secured loan most of us will take out in our lives, a mortgage is a secured loan which gives us the opportunity to buy a property of our own.
Most lenders require a deposit of at least 10% on the value of your home before they’ll lend you the rest. If you don’t keep up repayments on your mortgage, you’re at great risk of losing the home you live in.
Many lenders allow you to borrow up to the difference between the value of your home and the remaining size of your mortgage. This difference is called your “equity”. Sometimes, property-secured loans are called “mortgage equity withdrawal loans” or “homeowner loans”.
Mortgage equity withdrawal loans generally allow borrowers to take out much more money than with an unsecured loan. Interest rates are much cheaper as well and you can take years to pay the loan back. Homeowner loans are often used to add a conservatory or other type of extension to a borrower’s home.
Can you really afford to take the risk with a secured loan?
Putting up something you’ve worked hard for and value to borrow money from a lender is a risk. Is it a risk you’re sure you want to take, even if you might be able to take out a loan with no security for a slightly higher interest rate?
What if you lose your home? What if you and your family rely on your car to take you to and from work and the kids to and from school? How big a disruption to your life and the lives of your family would it be to lose the thing you put up for security?
Here at Loan Broker, we’re here to help you with unsecured loans which don’t put the things that you value at risk of loss.
What’s the best way to borrow money without offering security?
There are hundreds of unsecured loan companies in the UK happy to lend money to people with good credit histories and bad credit histories. With each of these companies, you don’t need to put your home, car, or any other valued item on the line to access the money you need right now.
LoanBroker works with an ethical, distinguished, trusted, and licensed panel of lenders. We don’t lend you the money but we put you in touch with the lenders most likely to say “yes” to your application. Start your application with us now to find the best offer from our panel.
Our service is free and you don’t have to take out any offer we find you from a lender.