Loan Application Checklist

Homeowners often have thousands of pounds worth of equity locked up in their property. One way to access this is to take out a secured loan. This can be an attractive option for those who are looking to borrow larger sums of money. However, there are a number of considerations that should be taken into account before choosing to borrow money against the value of your home or other assets.

Taking out a secured loan requires you to put forward an asset, such as your home, as a guarantee of full and timely repayment.

The major risk of homeowner loans is to your property. By using your property as security in this way, you are agreeing to the lender having a legal claim on your home in the event that you become unable to make repayments for some reason. However, there are potential benefits too.

Cheaper Borrowing

Lenders will often offer lower rates of interest for a secured loan compared to an unsecured one. This is because they have additional reassurance that the loan will be repaid, so there is a lower risk for them.

It is important to compare the cost of a secured loan to ensure you are getting a competitive rate. The loan period can also make a difference to the overall amount paid back. It is a good idea to use a secured loans calculator to work out the full cost of the loan before making any commitments.

Poor Credit

Those with a poor credit rating may find it difficult to be approved for an unsecured loan. However, in some circumstances they may be able to successfully apply for a secured loan, although interest rates are usually higher. The decision to take out a secured loan requires careful thought, especially for those who have previously found financial management challenging.

Other Considerations

Other than cost, those considering taking out a secured loan should also think about some other questions.

Are you able to make repayments, both now and in the long term? With any type of loan, the borrower must be confident that they will be able to maintain repayments. This is especially important for those with a secured loan, as inability to repay could put their home at risk.

Income Protection Insurance

Anyone borrowing additional amounts against the value of their home must think carefully about insuring their income. This is because monthly repayments will increase and it may be more difficult to afford them should circumstances change. Income protection insurance can offer some security.

What Are the Alternatives to a Secured Loan?

An unsecured loan can be suitable for those looking to not secure the loan against their property. However, interest rates may be higher.

Credit cards offer a flexible solution to borrowing and can be a low-interest option. However, credit limits are typically considerably lower than for either an unsecured or a secured loan.

If you do make the decision to get a secured loan, it is important to find the most competitive deal possible by comparing available loans. Consider interest rates and the borrowing period, and always calculate the total amount you will pay back using a secured loans calculator.