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It's not always easy to get a loan, especially if you have a poor credit rating. County Court Judgements (CCJs), defaults and late payments can blight your credit history, making it almost impossible to get an unsecured loan. But even people with a poor credit rating may be eligible for a secured loan if they own a house. This can provide a sensible option for people with a poor credit rating, outstanding loans or credit card debts who want to manage their debt. How Secured Loans Work Secured loans (also called homeowner loans) are loans secured on the value of your house. They provide security for lenders, who have a charge against the house once they have provided the loan. This is a first charge, if the homeowner owns the house outright, or a second charge, if the house is mortgaged. Having a charge against the house means the lender can be sure to get paid even if the borrower defaults. The good news for borrowers is that this means they can borrow large amounts. While typical unsecured loans tend to be less than £25,000, secured loans can be much higher, up to £100,000 from some lenders. This can help people who are looking to consolidate existing debt. Interest rates on secured loans tend to be much more competitive than those on unsecured loans. Homeowners may be able to borrow up to 85% of the equity in the home, with some lenders prepared to lend as much as 125% of the value of the home. Some lenders will require a valuation before lending any money. Repayment periods can be anywhere from three to 30 years, which is much more than the maximum 10 year repayment period typical of unsecured loans. How To Apply For A Secured Loan Secured loans are available online and offline. Most loan application forms will ask for the desired loan amount, the reason for the loan, whether you own your home, as well as name, address and marital status. To find the best provider, visit one of the online loan comparison sites. Loans over £25,000 are not regulated by the Financial Services Authority (FSA), but you can use the FSA to check if the company issuing the loan is reputable. This is worth doing before signing on the dotted line. Using A Secured Loan Although many lenders ask borrowers why they need the loan, borrowers do not always disclose all their reasons. Common reasons for wanting a secured loan include debt consolidation; paying for family expenses such as weddings, private school or university education; improving an existing home or purchasing a second one; buying land or a car; having a holiday or starting a small or home business. How To Manage A Secured Loan The key to managing a secured loan is to make the required repayments on time and in full. Failure to do this puts borrowers at risk of losing their home, which is the security for the loan. In addition, missed payments or defaults can damage borrowers' credit rating, making it even harder to get additional credit. For most borrowers, it is worth assessing their personal financial circumstances to make sure that an inability to repay the loan doesn't lose them their home.
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