A secured loan is a type of loan that uses an asset - usually a property or home equity - as collateral within the credit agreement. The asset can be repossessed by the lender if the debtor does not keep up with monthly payments.
The asset may then be sold to clear the arrears and outstanding debt. However, this only usually happens after multiple defaults and when the debtor is not willing to agree on an alternative payment arrangement.
There are many different types of secured loans, not limited to some home improvement loans, home equity loans and residential mortgages.
Differences between a secured and unsecured loan
The main difference between a secured loan and an unsecured loan is that the former is secured by an asset and the latter isn’t. Secured loans provide the lender with more assurance that you’ll pay, and consequently, these loans can be larger than unsecured loans with more competitive interest rates. But this isn’t always the case for all loan applicants.
The lending criteria are also “softer” for a secure loan, which means you might still get approved for a secured loan with a below-average credit rating.
What information will I need to provide?
You’ll need to provide personal and financial information when applying for a secured loan, just like when applying for an unsecured loan. This includes things like your income and existing debt repayments.
As the loan is being secured by an asset, you’ll also need to provide information about the asset. Most of the time it will be secured by home equity or a property outright. Therefore, you’ll need to provide information about the property, including its current market valuation.
The lender may want to inspect of value the property before agreeing to the loan. This is for their and your security and to prevent a situation of negative equity. Valuing your property may also be called an appraisal. You may or may not need to pay a fee for this service.
Consideration before applying for a secured loan
Before you apply for a secured loan, you should strongly consider your financial position and your ability to repay. Defaulting on a secured loan could lead to the repossession of your (family) home.
Lenders are required to complete extensive checks to make sure your loan is affordable, but they cannot predict the future perfectly. If you think your job could be at risk or your finances will decrease in the near future, taking out a secured loan may not be a good idea.
Making a secured loan application
We can assess your suitability for a secured loan and search the market to help you find the most advantageous secured loans for your position. Contact one of our friendly advisers today and discover how we can help with your secured loan application.