Secured Loans for Debt Consolidation

Secured loans for debt consolidation are very important this year.

Video transcription summary – this is not personal advice. Always speak to an adviser.

Secured loans for debt consolidation have regularly been used by homeowners for over the 40 years.

We are currently inundated with enquiries from people saying things like “my outgoings are going up, my mortgage rate’s gone up, my household expenses have gone up. I’ve got a lot of my credit at a high rate. I want to consolidate my debts and reduce my outgoings”.

Using secured loans for debt consolidation is a common solution. They are particularly helpful because people can borrow over a longer term which reduces their outgoings. They can also often borrow at a lower rate which reduces their outgoings further.

However, you have to think about the consequences of borrowing over a longer term. It means you’re paying the loans back for a longer term and therefore you might pay more interest in in total. Additionally, if paying off unsecured debt, you’re securing it against your home which is different to unsecured, as it can put your home at risk if you don’t keep up the repayments.

When to consider secured loans for debt consolidation

Comparing a secured loans with a remortgage

Secured loans are a great product and a lot of people apply for them. However, careful advice is needed from a professional secured loan and mortgage adviser who can compare the market for both secured loans and mortgages side by side.

Keeping your existing mortgage deal or avoiding early repayments charges

Secured loans can be really important for people who need to raise cash but they don’t want to remortgage because they want to keep their existing rates. You may love the deal you have and if on a fixed / capped / tracker rate for an initial term, you may incur penalties if you remortgage.

Change of circumstances means reduced choice or remortgage products

Borrowers who’ve got poor credit usually can’t raise cash via remortgage so secured loans are really helpful. Many products are specifically designed to accommodate poor credit and allow borrowers to keep their existing mortgage rate. Even if a remortgage was available, it would probably mean their entire mortgage would move to a higher rate and cost far more. Just paying the higher on the secured loan can make better financial sense.

Maybe, due to affordability or you’ve changed your job there isn’t an attractive mortgage product available. Consider keeping the existing mortgage and raise the cash you need with a secured loan.

Secured loan lenders are better at debt consolidation

Most mortgage lenders don’t like debt consolidation. They often apply restrictive criteria so it just doesn’t work. Secured loan lenders are really geared up for debt consolidation and can be a useful aid to sort out expensive unsecured credit with a view to remortgaging back to mainstream lenders at some point in the future once your income and outgoings are in control.

Beware comparison sites – they can restrict your choice

Secured loans are a really versatile product and great for some people. But don’t assume by reading this page they are ideal for you. Don’t look at secured loans in isolation and don’t simply go online and apply to a “secure loan specialist”

Secured loans need to be looked at as part of a range of products to deal with your needs which means considering and comparing both a remortgage and a secured loan side by side.

When you apply online, the chances are, you’ll end up with a “secured loan expert” and they won’t look at the remortgage option for you. The reason they won’t look at it is because it’s really difficult to compare both and make a recommendation. So they’ll just stick to secured loans because it’s easy. Great for them – really rubbish for you as you are being denied access to probably 75% of the products available.

Always, always find an advisor who compares and advises on both secured loans and mortgages PLUS has direct access to the secured loan lenders and understands them well.

What is a secured home owner loan?

Let’s say you’ve got a property worth £500,000 and you owe £200,000 pounds on your mortgage.

Then you want to raise another £100,000
Rather than remortgaging for up to £300,000, you take out a separate loan for £100,000.

The loan is registered against your property at land registry in the same way as your mortgage. Your mortgage lender has the first charge registered at land registry. Your secured loan lender has the second charge registered at land registry. Hence, you often hear a secured loan referred to as a second charge loan. It’s the same thing.

This means, that when you come to selling your property, the first charge gets repaid first and the second charge gets paid off second. Consequently, the lender knows its got a strong chance of getting its money back as it has security. Just like your mortgage, your home is at risk. The key difference is the loan is from a different lender on different terms.

Why consider a secured loan for debt consolidation with a different lender?

With a different lender you can get different terms, different risk appetite, different repayment periods, different affordability calculations, different LTV’s etc etc.

• Some secured loan lenders grant loans up to 100% loan to value and even beyond.
• Where as most mortgage lenders cap your borrowings at four and a half times your income, secured loans regularly go up to six times your income. This allows you to potentially borrow more.
• A secured loan lender might be more accommodating of different property types and conditions, including Buy to Let property or even commercial property.
• They might accept different job types and income types
• They usually offer greater flexibility around the purpose of the loan, especially if it’s for business purposes, tax etc.

Simply put, you can often get more flexibility from a secured loan but don’t take it for granted. As mentioned above, it’s important you deal with somebody who is a secured loan specialist but also advises on mortgages and can compare both options for you.

What about debt management or an IVA to help manage debt?

You might be thinking of using debt management to reduce your outgoings. However, it may well be debt management which has caused other people, or you, problems in the first place.

This is because, when going to debt management they freeze all your repayments. This shows on your credit search and you then get a bad credit history.

If you have a good credit history now, take great care not to wreck it for years to come by taking on debt management or entering an IVA. Of course if you already have poor credit it has less impact but could mean that you have bad credit for many years to come until the debts are settled. Therefore, it’s longer before you can borrow on mainstream terms.

Taking a consolidation loan now can help to crystallise your bad debt now, maybe settle historic CCJ’s and defaults and help you back to main stream borrowing sooner.

There is no “one size fits all”. Take advice and take action.

If you a consolidation loan or mortgage isn’t for you, help at https://www.gov.uk/national-debtline

Talk to a Promise Money adviser for more details

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