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Alternatives to Secured Loans

12th May 2022

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. 

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    Secured Loan examples above are based on total borrowing of between 50-75% of the value of your property. Any lender / broker fees can be added to your loan which will increase the repayments and total amount repayable. Discuss this with your Promise adviser.
    REPRESENTATIVE EXAMPLE FOR PERFECT CREDIT HISTORY (with all set up fees added to the loan) – £63,000 over 228 months at an APRC of 4.2% and an annual interest rate of 3.47% (variable) would be £398.62 per month, total charge for credit £24,400.36, total payable £90,885.36. This figure includes a Promise fee of £2,690. Actual repayments depend on your circumstances.

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