Borrowing money can be a headache. There are so many loan types to consider and you’ll want to get the best one to protect your future financial health.
One type you may have come across is a secured loan, which is a great choice if you’re a homeowner. If you aren’t sure what this is, our guide can clear everything up for you.
What is it?
This is where your loan is secured against a high-value item. A home is typically used for this, but cars are sometimes accepted too.
Lenders are more likely to approve this type because their money is protected. This means that should you fail to repay it on time, they’ll seize the high-value item instead.
What are the advantages of it?
One of the main advantages is the ability to borrow larger sums than when the loan is unsecured. This could be used to buy a new family car or fund your dream wedding.
Another benefit is that interest rates are usually lower because it isn’t as risky to lenders. This can make your repayments more affordable, ensuring you don’t fall behind on them.
Finally, you can usually borrow the funds over a longer period. Some loans last up to 30 years so you can expect more manageable repayment terms.
How can I increase my chances of being approved?
Being approved isn’t always straightforward. Around one in five Brits are denied credit annually and that can be due to a lack of preparation.
Try the following tips when you apply for a secured loan to increase your chances of approval:
- Review your credit score using a reliable site and take steps to improve it
- Clear your debts
- Be realistic with the amount you want to borrow
- Fill out your application carefully and be truthful throughout
- Get in touch with lenders to speak to them about your application
Are there any risks associated with it?
As you might expect, there are some risks to consider. The biggest is that failure to pay on time can result in your house being repossessed, which damages your credit file and can leave you homeless.
You also risk spending more money if you choose a long-term loan. This is because you’ll have to pay back more monthly instalments with interest added. You may also be hit with an exit fee should you wish to pay it back early.