Alternatives to Secured Loans
15th November 2023
By Karina Nowicka
There are plenty of alternatives to secured loans including a remortgage. But if using your home as security sounds like too much of a big risk to you, or you may not qualify, there are multiple other options to choose from that may actually suit you better and don’t require your home as security. These include:
Arranging an overdraft with your bank
This option can be helpful to anyone who already has a live bank account. Although bankers usually still do some checks to see if they can go forward with an extension of your account, most of the time it’s an easy alternative to a loan.
With that being said, although there may be no interest rate, most banks do set out a daily charge. So if you do not put money back into your account or pay off the arranged overdraft fast enough, the bank can still charge you extra. Regularly use an overdraft, especially if it has not been pre-agreed, can be very expensive. It may be better to consider a structured loan you pay off over a period – especially if you have a good credit history and qualify for low rates.
Applying for a bad credit unsecured loan
People often consider these as alternatives to secured loans when actually a secured loan would be far far cheaper. Bad credit loans, as the name suggests, are thought of for individuals with very poor credit scores. However, when considering an unsecured loan, anyone who falls just outside the main lenders credit score requirements may drop in to this type of loan. Homeowners could qualify for a secured loan at a fraction of the rates being offered.
However, if having an unsecured loan outweighs the significant savings of a secured loan, or you are not a homeowner, this alternative might be OK for anyone who wishes to borrow roughly up to £15,000. This is approximately how much lenders offer with this type of loan. This does however vary. Bad credit loans typically have very high interest rates of 40% to 200% APRC making them expensive. If you are homeowner and equity in your home, a secured loan is likely to cost far less.
Short term “payday type” loan
A short term loan is very similar to a bad credit loan. However, this alternative is for borrowing much smaller amounts (usually a few hundred pounds).
Like the name says, it is short term only which means you borrow a small amount of cash and pay it off fast. Typically within 2-12 months. The interest rate on short term loans is usually quite high, due to paying it off fast. Also, because people with poor credit are still accepted.
Beware this type of loan as the rates are so high – often around 1000% per annum (APRC). Because people use them when they are desperate, and pay them back in a month or so its easy not to notice the very interest rate. However this type of loan could also ruin your chance of getting a normal mortgage or loan as other lenders see these as a last resort and assume anyone who takes a short term payday loan has a problem.
Credit builder cards
This could be a good solution for someone who wishes to improve their credit score AND borrow a small amount of money. Despite being limited to a smaller sum, it does allow you to spend more as long as you stay within your credit limit.
It does however have a high interest rate. So if you are unsure about any kind of overdrafts or credit cards, speaking with your bank would be advised.
Guarantor loans
In order to be accepted for a guarantor loan, you must have a trusted person who is a homeowner and has good credit, that can agree to be your guarantor. That can be anyone from a family member to a friend, who understands and agrees to being responsible for making your repayments if you fail to do so.
There are many boxes that must be ticked in order for your guarantor to be accepted by the lender. Having a guarantor can increase your chances of being accepted and let you borrow more. However can be more expensive to pay off in interest.
Pages which others have found useful…
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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