Secured Loans fall into two camps, regulated and unregulated. Regulated secured loans offer customers maximum protection from bad practice. This includes strict rules and an automatic right to use the Financial Ombudsman Service. The property offered as security is the main factor in determining whether a loan is regulated or not. Loans secured on residential homes are normally regulated. Loans secured on property other than homes eg a buy to let or commercial buildings are normally unregulated.
Capital and Repayment
Each repayment pays back some capital (amount borrowed) and interest. This means the amount outstanding reduces gradually over time until it is settled in full at the end of the term (providing all repayments were made on time).
Some lenders offer interest only loans. As the name suggests repayments cover purely interest so the capital (amount borrowed) is not reducing at all. The balance of the loan will be the same at the end of the term as it was at the start. An “exit route” approved by the lender is needed. This is a source of money enough to settle the loan in full by no later than the end of the agreed term. For example an endowment policy or sale of a house.
There are also different ways in which a lender can apply their interest rates:
Standard Variable Rate (SVR)
A standard variable rate means the rate is set by the lender and can change throughout the duration of the loan. Though a lender will aim to be competitive in the market you are still by and large in their hands and the rate can go up or down at any time.
Base Rate Tracker
Similar to a Standard Variable Rate the interest rate is set at a margin above the Bank of England’s base rate. For example if the base rate was 1% and the lender was offering base rate plus 2.5% the rate charged would be 3.5% (1% + 2.5%) . If the base rate went up to 2% the rate charged would become 4.5% (2% + 2.5%). It would always be the same % above the base rate. An advantage of this type of loan is the rate only goes up when the Bank of England’s base rate goes up. In recent years the base rate has been low and hasn’t fluctuated greatly.
Fixed Rate Loans
Interest is fixed for a specified period of time eg for the first 1 to 5 years. The advantage of this type of loan is that it gives the customer a guaranteed monthly payment that will not change during the fixed rate period. At the end of the fixed rate period the loan normally switches to the lenders standard variable rate.
Capped Rate Loans
Capped rate loans have a maximum above which they can not go. For example a loan capped at 5% could be no more than 5% even if the lenders standard variable rate were higher. The advantage of this type of loan is that they give the customer some certainty and protection from rising interest rates.
Lenders offer discounted rates to entice customers to apply. They discount (reduce) the normal rate applicable in an attempt to look more attractive. For example if the standard variable rate was 5% and the lender was offering a 2% discount the rate charged would be 3%. The discounts apply for a set period only which is made clear at the start, normally 1 or 2 years.
How to apply for a secured loan
Most secured loans are applied for through intermediaries / advisers like Promise. They tend to have access to a wide range of products. This maximises the options they have to recommend a loan which suits the customer’s needs.
To talk to one of our advisors, simply fill in the quote form below or call 01902 585020.
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
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.
Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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