A secured loan can offer the borrower the lowest rates and most flexible terms. In return for this the borrower offers an asset, often property, to act as collateral against the value of the loan. The more valuable the asset, the more a lender will be prepared to lend. This asset acts as a security against the risk that the borrower may fail to repay their loan, thus the lender feels secure.
Secured loans are attractive because they are generally the cheapest form of borrowing. Such loans are generally used to borrow large sums of money, ranging from £3,000 to over £100,000. Large sums of money like this may be used in a variety of ways, from purchasing a new car to a home extension. One restriction regarding the purpose for a secured loan, is that the intended purpose for the loan must not be considered risky by the lender.
Low value borrowing may be better financed by a personal loan or an extension of an existing mortgage. For smaller borrowing needs a better deal is likely to be found with these type of loan, plus no asset is needed to secure the loan amount.
The rate and terms offered by a secured loan provider will depend on the personal and financial circumstances of each applicant. To find a good deal, firstly, an applicant should work out how much they can afford to repay each month, given their income. Once this figure has been calculated, the borrower should contact a number of lenders to find out about their rates and terms. The option of a long repayment term, of up to thirty years in some cases, is a benefit of secured borrowing. However, it should be realised that while a long term minimises monthly repayments, it will increase the overall cost of the loan.
A good credit history will mean a lender is able to offer the applicant their best rate and terms. However, borrowers who have a bad credit rating can access secured borrowing. Specialist bad credit lenders deal particularly with the sub-prime lending market. Bad credit borrowers may even be able to improve their credit rating by successfully honouring their bad credit secured loan contract. Such loans are often called credit repair loans.
Secured loans offered can be very different from one lender to the next. For this reason to find the lowest rate for the best deal, it is essential to shop around. When comparing loans, a shopper should compare the initial rate, APR and check the loan agreement for small print, paying particular attention to any charges and/or minimum contract periods.
