When Is a Secured Loan a Good Option for a Borrower?

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Secure loans can be used to cover the costs of planned and unexpected expenses alike. By getting to know the functions and applications of secured loans, you’ll be in a better position to know when, where and if secured borrowing is for you.

What Are Secured Loans?

A secured loan is essentially any loan that users the borrower’s collateral as security. The applicant provides assets to cover the cost of the loan, which the lender takes ownership of in the event of non-payment. Loans are typically secured on the home of the applicant, though may be secured against other assets deemed acceptable by the lender.

As the total value of the loan is covered by the applicant’s assets, secured loans are considered low-risk on the part of the provider. This leads to lower interest rates and overall borrowing costs than comparable unsecured personal loans. In addition, there are no specific limitations to how much can be borrowed in the form of a secured loan. By contrast, unsecured personal loans are rarely granted for more than around £10,000.

What Can Secured Loans Be Used For?

The vast majority of secured loans are used for property purchases and other major investments. Nevertheless, there are various different types of secured loans for a variety of applications – examples of which include the following:

  • Mortgages. Issued exclusively for the purchase of commercial and domestic properties.

  • Bridging Loans. Can be used for almost any purpose, accessible within days.

  • Personal Secured Loans. Available in smaller sums, flexible collateral criteria.

  • Debt Consolidation Loans. Used for consolidating and reducing the overall outgoings.

  • Secure Business Loans. Exclusively for business purposes with no upper limits.

  • Auction Finance. Ideal for purchasing properties at finance when time is a factor.

  • Development Finance. Issued for more demanding and extensive development projects.

  • Car Loans. Available for business and private applicants to purchase new and used vehicles.

Just a few examples of the various different types of secured loans and their intended purposes. In all instances, it’s advisable to first consult a secured loan repayment calculator and speak to an independent broker, in order to pinpoint the perfect product to suit your needs.

When Is Secured Borrowing Better?

Every borrower, every lender and every scenario is unique. Precisely why it pays to speak to an independent consultant, before going ahead and penning your application. Nevertheless, there are several key advantages to secured borrowing that apply to every type of secured loan.

As already touched upon, secured loans often attach interest rates and overall borrowing costs that are significantly lower than those of comparable unsecured loans. Considered lower-risk by the lender, costs can be kept to comparative minimums as the loan is secured on viable property.

In addition, secured loans can be much quicker and easier to arrange than unsecured personal loans. When the applicant’s assets are used to cover the cost of the loan, typical measures like credit checks and providing proof of income may be excluded entirely. A stronger financial position may result in even more amicable borrowing costs, but you’ll rarely be excluded on the back of your credit history alone.

Due to the simplicity of the application process, certain types of secured loans – such as bridging finance – can be arranged and accessed within a matter of days. Ideal for covering urgent costs and capitalising on time-sensitive investment opportunities.

Once again, the importance of seeking independent advice and consultancy cannot be overstated. Use a secured loan repayment calculator to learn more about typical borrowing costs and repayment terms, before booking an appointment with an advisor to explore the available options.

Article by iConquer

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