Types of Secured Loans
Secured loans can be useful for a number of reasons. There are a few types to choose from, depending on your requirements. Although you may already have a purpose and a loan amount in mind, it’s still important to have an understanding of the different types of secured loans. This will help you understand further, and choose which one might suit you and your situation best. So, here are some examples:
A mortgage is a loan taken out with either a bank or a building society, in order to buy a house or raise a loan secured against it. A mortgage is usually for a long period of time. This allows you to pay it off over the course of up to 25 years in monthly instalments. When you agree to a mortgage secured loan, you are using the property as security. This does however, put the property at risk of repossession, if you don’t keep up with the repayments. The same theory could work with a new car or other valuable assets you use as collateral.
Share-secured or savings-secured loans
These loans are secured by the amount of money you might have in your savings account. You may be entitled to borrow up to double your savings using this scheme. Additionally, this type of secured loan can also help you build up your credit score if repayments are made on time.
Secured Homeowner loans
Also known as second-charge mortgages or home equity loans, homeowner loans are the most frequent type of secured loan. These allow you to borrow money against the value of your property without altering your existing mortgage arrangements. You repay the loan by monthly instalments over an agreed period of time.
Bridging loans are usually short-term and are secured against your property. It helps to fund the gap between selling your current home and buying a new one. So, if you are looking to buy a new house but haven’t sold your current one yet, a bridging loan could help you fill in the gap.
Debt consolidation loans
This loan has been created specifically to pay off your existing debts. It combines all of your debts into one, which helps you pay off your other borrowing. Additionally, it makes it easier to stay on top of your payments and manage your monthly spending. Debt consolidation loans are generally also secured against an asset such as your home. However, this is not always the case, as depends on the lender.
Bad Credit loans
This is a type of loan, made specifically for people with bad/no credit history. It usually has a much higher interest rate and there are tighter regulations in place, since the lender needs more security or customers are more vulnerable. Unsecured versions of this type of loan doesn’t usually allow you to borrow massive amounts of money. For example, you typically pay it back within 1 – 5 years depending on the amount you are borrowing. If the loan is secured against property you are far more likely to get accepted and loans can be consider for larger amounts and over longer repayment terms.
Fixed and Variable Rate Loans
It’s crucial to understand the differences between fixed interest rates and variable interest rates when considering taking out a loan. This can help you save money and potentially meet your financial aims, no matter what it is you are borrowing the money for.
The monthly repayments and the interest rate are fixed for a set amount of time, generally over a number of years. This means you know exactly what you will be paying over this period of time. When the agreed fixed rate term ends, the borrower is charged the lender’s standard variable rate. This could make your repayments increase or decrease.
- Variable rate secured loan
Your monthly repayments could increase or decrease, according to the market and the Bank of England base rate. Even if your starting rate of interest was agreed upon, the amount you are paying back monthly may change. It can cause changes to the overall cost of your loan.
Overall, there are plenty of secured loan types made for specific needs and different circumstances. Regardless of what type of secured loan you might be considering, it’s always advised to compare the deals, monthly repayment amount, term length, fees and interest rates. By doing this, you are increasing your chances of finding the best deal.
Talk to a Promise Money adviser for more details
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