When they require quick access to funds, most people will consider taking out a loan. Loans can be useful for a number of reasons and there are lots of different ways you can borrow money these days. Typically loans will fall into one of two categories; secured loans and unsecured loans, and whilst each of these options have advantages, secured loans are often the first choice for homeowners when they need to borrow a considerable amount of money.
Simply put, secured loans are loans that are secured on your property and they will essentially be a second mortgage. You may also hear secured loans referred to as second charges and this type of lending may be beneficial for several reasons. Below we have explored some of the reasons why people take out secured loans in more detail.
Why do homeowners take out secured loans?
Usually, homeowners wishing to borrow further funds against their homes would either take a further advance from their existing lender or remortgage to a new lender who would offer more money. If for whatever reason this option is not available, or if they require funds quickly, they may be advised to go down the second charge route.
Common reasons for 2nd charges include:
- To carry out home improvement projects, such as an extension
- To purchase additional buy-to-let or holiday-let properties
- To pay for a big life event, like a wedding
- To consolidate lots of other debt
Generally speaking, homeowners take out secured loans when they require more than around £25,000. An unsecured loan would probably suffice for anything less. When you take out a secured loan, because this is a charge on your property just like your existing mortgage, the lender has the right to take possession of your property if you don’t make all required payments.
What are the benefits of secured loans?
When compared to the other options available for people who require quick access to funds, secured loans are a very popular choice. Some of the biggest benefits of this particular type of loan include;
Borrow more money
It isn’t uncommon for the amount you can borrow with an unsecured loan to be quite low and you might not be able to get as much as you need through remortgaging with a mortgage lender. However, depending on the circumstances, the amount of money you can borrow with a secured loan is usually much greater. Generally, interest rates are more competitive than unsecured loans, reducing the amount you have to pay back to the lender.
Longer loan period
Due to the fact that the loan is secured on your property, lenders won’t be as apprehensive about offering you a longer loan period. Often, secured loans can be for a period of up to 30 years, or more in some cases, and you won’t have to worry about paying the amount you borrow back in a couple of years. This means your monthly repayments would be much less too, making this type of loan more affordable.
Avoid early repayment charges
You usually have to pay a significant early redemption fee to your existing lender if you choose to remortgage. A secured loan is a way of raising capital whilst avoiding those fees. You may still incur other costs, such as arrangement fees and legal fees, that you wouldn’t have to pay if you opted for an unsecured loan, but the benefits of taking out a second charge on a property often outweigh these additional costs.
Taking out a secured loan
If you’re looking for a way to raise funds and you would like to speak to someone about secured loans in more detail, get in touch with our team at Blue Q today. We are a local team of dedicated, independent mortgage experts and we will be happy to provide you with the advice and guidance you need. We pride ourselves on delivering first-class customer service and we can help you find the right mortgage lender and mortgage product, regardless of what your circumstances or needs may be. With experience in all aspects of the mortgage market, you can trust that we are the best team to turn to.
- Top Tips on Preparing Your Property for Viewing - May 19, 2022
- Why Do People Take Out Secured Loans? | What Are The Benefits? - May 19, 2022
- Common Reasons Why Mortgage Applications Get Rejected - April 26, 2022