3 Things You Might Not Know About Secured Homeowner Loans

Secured – or homeowner – loans might seem straight forward on the surface, but there are a lot of misconceptions out there about how they work, what they cost and who’s eligible for one. If you’ve been thinking about a secured loan but have questions, we’ve rounded up a few of the key things you might be wondering about.

You might be more eligible than you think

You might be used to needing a good credit history to be able to borrow even relatively small amounts of money. So, when you’re looking to borrow tens of thousands of pounds as a secured loan, doesn’t this mean your credit history needs to be perfect? Not necessarily.

Secured loans use your home as security on your borrowing. This means that if you’re unable to repay the loan at any point, the lender has a fallback option to get their money back: repossessing your home. This means that you should consider a secured loan, as with any type of borrowing, extremely seriously, but it needn’t put you off.

Repossessing your home is usually the last resort option for lenders if you don’t repay a secured loan, and they’ll normally try to work with you to get back on track or agree a reduced payment plan first. But, having that last resort option means they can sometimes offer more flexible lending criteria. This means that even if you have a bit of a chequered credit history, perhaps with some missed payments or even CCJs in your past, this might not take you out of the running. Remember though, there’s more to being approved than your credit history, and lenders will look at your income, your other expenses and commitments, and other factors when deciding whether to lend to you.

They can be cheaper than other types of credit

Having the last resort option of repossessing your home also has another positive flipside to it: secured loans tend to have lower interest rates than some other types of credit.

One of the main reasons interest charges exist at all is as a way to compensate lenders for the risk they take in lending to people. After all, there’s always a chance – even a teeny tiny one – that not everybody they lend to will pay them back, and being paid interest by all their borrowers prevents them from being left too out of pocket if this happens.

The greater the risk a lender takes by lending money to people who perhaps don’t have a great track record of repaying other borrowing on time, or who are asking for very large loans, the higher the interest rate they will charge to balance out their risk. Except for with secured loans. Securing your loan against your property significantly reduces the risk the lender is taking by allowing you to borrow from them, as they know exactly how, in the worst case scenario, they’ll get their money back. This often means that lenders charge much lower interest rates on secured loans. If you’re certain that you’ll never have issues repaying a secured loan, then this can make them a cost-effective way to borrow.  

Speaking to an adviser is par for the course

There’s a lot of choice out there with secured loans. There are lots of lenders out there, offering hundreds of individual secured loan products between them. There are fixed rate loans, variable rate loans, and depending on the equity you have in your home, you could borrow £100,000 or more. Thankfully, nobody expects you to navigate all this by yourself. Whether you already have a lender in mind or have decided to organise your secured loan through a broker or comparison site, speaking to an expert adviser is usually a key and comforting part of getting a secured loan that helps you make sure that first and foremost, a secured loan is the right choice for you, and that you’re getting the best deal available.