Understanding More About Secured Loans Before You Borrow

The Secured Loan market in Britain has seen tremendous growth in recent years. Far from being a victim of the credit crunch and waning as so many other finance sources have it has in fact flourished due to the circumstances of the market. Is this growth sustainable? Can the market continue to offer a lucrative source of finance for borrowers, lenders and brokers alike? This will depend on many factors.

A secured loan is a second charge on a property. Currently you can have total borrowings on your property of about 85% (subject to circumstance, of course) so if your mortgage is less than this amount you can borrow extra up to this amount using this available equity, usually no more than £100,000 though.  Rates on the loans start from about 7.9% and depending on the Borrower’s circumstances can reach up to 30.9%. This may seem high against a backdrop of 0.5% base rates but when you consider that an unsecured loan can be as high as 149%, suddenly it seems like relatively good value!

So what has driven growth in this market? Quite simply, it is demand at the right levels. The demand has been largely driven by Borrowers who are on excellent Tracker mortgage rates – a hangover from the credit bubble – and do not wish to remortgage and lose this rate in order to increase leverage. For example, a borrower on 50bp over base Rates (yes, there are many such people!) is now only repaying at 1% p.a. but if they remortgaged to raise extra finance, this rate would easily triple or quadruple. In light of this a loan at under 9% makes a lot more sense when viewed in the context of a weighted average of the Borrowers borrowings.

When we say it us demand “at the right level” this is a reference to the rates that can be attracted and, possibly more importantly, the fees that can be earned by Brokers for providing these loans, thereby incentivising them to push them with their customers. Normal fees are about 10% of the total loan amount and though this does increase the overall APR and is far more than the nominal fee charged for to arrange an unsecured loan, in light of the aforementioned reasons it is often still worth it. Of course with such generous fees there is a strong incentive for Brokers and also Introducers who can earn up to 60% of this fee for simply making a referral! It’s not hard to see then why the market has grown in prominence and volume!

Will this last? As long as remortgage rates and LTVs remain prohibitive, along with other lending criteria, then the answer is probably Yes. In addition some price competition between Lenders and also between Brokers as emerged recently making this product even more attractive for Borrowers. Whatever happens, one thing is for sure: the Secured Loans market has emerged from the shadow of Mortgages and is now firmly on Borrowers’ financial radar.

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Everything You Need To Know About a Commercial Loan

If you are in the process of expanding an existing business or taking the first steps to becoming your own boss, there are several steps to take until your company is up and functioning properly. A great way to expand a business is to locate a business site in which you can set up and run as your company. In order to raise the finance to purchase such a premises you must find a lender who is willing to lend to you based on the value of the property you are buying. This is called a Commercial loan and is similar to your traditional home loan but with slight differences. Firstly the LTVs are lower than with home loans as business viability is riskier. Usually a maximum of 75% LTV is available though sometimes higher can be achieved.  Secondly the income of the business, rather than the individual, is analysed as a priority. And finally, even after all this, the individual may be asked to offer Personal Guarantees as security. It’s a complex field and therefore speaking with a commercial mortgage specialist is highly advisable.

How to get the best rate for your money?
Once you have made the final choice to expand your business and have located professional help, it is important you sit down with your banker and discuss your financial situation and what you plan to spend, in order to build a successful business. A business loan is very hard to come by especially if you have had past judgments against you that may lower your chances to obtain a loan. One option that has been successful for other business owners is going directly to the same bank in which approved you for their home mortgage loan. The great thing about a local bank that has established a relationship with you already is the trust factor that is present in every mortgage payment you have made in the past up to this point in order to increase your credit score. Many also have several incentives available to their customers to apply for a Commercial Mortgage loan including discounted rates lower deposits.

When to put your offer on the table?
Once you have found the perfect building for your business it is up to you to act quickly to secure it.  You will always be in a stronger position as a Buyer of you can show finance in place so it is worth discussing with you bank in advance of your search to see what funds are available to you It is likely they can pre-approve you based on certain scenarios and give you an idea of what it is you can afford. With finance in place you can then go about negotiating the best deal. Nothing sways a Seller’s price more than the thought of a clean transaction with cash up front – this will always be your most powerful negotiation tool. At last, when you have signed the contract and settled all disputes you can now sit back and enjoy the freedom that comes with knowing your business premises are secure.

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What you need to know about a Secured Loan and Unsecured loan

A secured loan allows an individual to use their personal property as security to obtain a loan. By placing a charge over personal property, the bank is reassured that they are not at high risk of losing any money if you happen to default on any payments. The charge however is a second charge and so must sit behind a pre-existing mortgage. Somewhat surprisingly then, it is the case that if you don’t already have a mortgage and your property is unencumbered, then you can’t get this kind of loan! It is also important to note that in the event of default, the bank is entitled to foreclose on your property which can then be sold to recover the debt. Since this type of loan requires you to place a charge on your property until the loan is paid, the interest rate attached to the loan is usually more beneficial and the term can be longer – up to 20 years. The alternative of taking a loan without security most likely leads to a more punitive rate - this is the primary advantage of the loan.  In addition, even those with poor credit histories can borrow if they have enough equity in their property; usually total borrowings can go up to 85% LTV.

How individuals can gain from a loan?
As with all loans there are some disadvantages, most notably in this case that your property is at risk if repayments are not made, however there are several positive factors too. Many people on this type of loan have had poor credit histories and by leveraging the free equity in their property they allow themselves an opportunity to borrow and, in making repayments, rebuild their credit record and their credit score. This is a great opportunity for a person to prove they are capable of paying off a loan they may not have had the opportunity to take in most cases.

2. What you need to know about an unsecured loan?
An unsecured loan involves borrowing money from a lender without having to supply any collateral (such as personal property) for security purposes. Usually the term is no more than 5 years. In the current financially straitened times, being approved for this type of loan usually means you have had no or little trouble maintaining a positive credit report that reflects your accountability to pay what is owed in a timely manner. However, don’t expect it to be cheap! Though base rates are at 0.5%, loan rates start at about 8% for even the most prime credits! If you have had a questionable credit history then rates quickly hit double or for some even eye-watering triple digit interest rates! Clearly it pays to maintain a good credit record!

How individuals can choose the best loan possible
Which is the best kind of loan for you? It depends on your circumstances and requirements. Are you happy to secure your home or would you rather not? Is the interest rate and repayment term important to you? Weigh up these factors and you can determine which is right for you.

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Choice Loans is in a privileged position of having access to ALL Secured Loans lenders in the market. If you need short term cash and either are a tenant or you don't wish to offer your house as security you could get an Unsecured Loan.