If you’re struggling to afford that much-needed holiday in the sun, coveted new car or home renovation project, you may wish to consider taking out a secured or homeowner’s loan. These loans are also favoured by people who have lots of existing debts and wish to consolidate them to make repayments simpler. A homeowner’s loan is ‘secured’ against your property, and if you don’t keep up with repayments, there’s always the chance that your home may be forcibly sold. As long as you have a property, secured loans are easier to obtain than their unsecured counterparts because the lender has a guarantee that they will be able to recover their money, in the form of your home.
Deciding How Much to Borrow
Before you take out a secured loan, it’s important to look honestly at your existing debts. It’s not always possible or practical to consolidate all of what you owe into a single debt. Make sure you use the secured loan to pay off the more expensive debts with the highest rates of interest, for example credit card debts. It’s important to budget carefully and work out the maximum amount you can commit to paying back. Underestimating this may cost you more interest as it will take longer to repay, and overestimating may put your property on the line. The correct planning and a realistic outlook is key when it comes to secured loans.
The Rate of a Secured Loan
The rates of secured loans are usually variable and can change with UK base rates and due to the requirements of the lender. It’s important to read the small print so you know where you stand. Think about whether you could afford to keep up repayments if the rates increased. The interest rate of a homeowner loan depends on several factors, including the size of the loan you wish to take out, the length of time you’re interested in borrowing for, your credit score and the free equity on your home. Your credit score is dependent on your income and whether or not you have outstanding debts or are behind in repayments. Those who have failed to repay loans or been declare bankrupt will have a poor credit score. ‘Free equity’ is the difference between the value of your home and the amount of you owe on it, and the larger this difference, the better the rate of loan you will be offered.
Finding the Best Secured Loan Deal
There are plenty of loan companies to choose from when it comes to homeowner loans. It’s important to do your research in order to find the best deal, and there are free tools online that allow you to compare the rates of different lenders. Always borrow from a reputable lender like 1st Stop. Some people borrow from their existing mortgage lenders, as they may offer special terms for those with a good record of repayments. However, this is rarely the cheapest solution. Before you commit to borrowing, make sure you have a good understanding of what is required of you and the terms of your borrowing agreement.