A secured loan could be a good option if you need to borrow money, although they don’t suit everyone. These loans are very much like mortgages and are available through banks and other lenders, and they allow you to borrow a larger sum of money compared to an unsecured loan.
But how do you apply for one? And how long does it take to get approved?
Here’s everything you need to know.
What is a secured loan?
A secured loan is also known as a second charge mortgage or a homeowner loan.
It is a loan taken out against your home, in addition to the main mortgage.
Very often these are used where you are unable to borrow the extra money from your current lender, or perhaps there are high exit fees preventing you from remortgaging.
Once in place you will have two mortgages attached to your house and will make two separate repayments each month.
How long does it take to get a secured loan?
Timescales will vary between lenders, but they are quite quick at 2-4 weeks.
- Quicker than a capital raising remortgage
- Slower than an unsecured personal loan
As with all loan applications, the time needed will be affected by your ability to provide the information needed by the lender.
The secured loan will be regulated by the FCA as it is secured against your home. Being regulated will add slightly to the administration required and the lender will need to be sure that the new loan is affordable.
The new lender will need to write to your current mortgage company, asking for permission to register a ‘second charge‘ for your loan. If your lender refuses, then some lenders can work with an equitable charge instead.
Once the lender is happy they will issue you with a formal loan offer. This will detail the amount you can borrow, any fees, the interest rate and monthly payments. You will then be given a 7 day reflection period. This gives you some time to consider the offer and the financial aspects, before requesting the money. It’s up to you whether to take the full 7 days offered.
After this you should have your money in just a few days.
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How much can you borrow?
The amount you can borrow will be affected by your income, affordability and the equity in your home.
Secured loans are available upto 90% loan to value, less any existing mortgages.
What can the loan be used for?
You can borrow money for quite a few different reasons. These will include:
- Debt consolidation
- Home improvements
- Deposit for another property
- Lease extension
- Holiday / Wedding
- New car
Do secured loans require a credit check?
Yes they do.
The lenders will want to credit check everyone that is applying for the loan. These lenders can offer loans even if you have small amounts of bad credit.
It may be a good idea to check your own credit report before applying, so you can anticipate any problems.
Will you need proof of income?
Yes. Proof of your income and your expenditure will be required in all cases.
The lender needs to demonstrate that you can afford the repayments, as the loan is classed as regulated.
Can you get a secured loan if you’re self-employed?
Secured loans are available to homeowners who are self-employed.
But you will still need to provide proof of your income, usually over the last 2-3 years. Acceptable documents will include trading accounts, bank statements, tax returns and SA302.
Will I need a survey?
The second charge lender will ask a surveyor to visit your property to conduct a mortgage valuation.
This is not a full survey but it will show what your property is worth.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
What are the alternatives?
Very often secured loans are chosen because you have been unsuccessful with the available alternatives.
These can include:
- Further advance – A further advance is an extra mortgage provided by your current mortgage lender
- Remortgage – Where a further advance is not feasible then a remortgage provides the option to move the mortgage to a new lender and borrow the extra money at the same time
- Secured loan – Where a remortgage is not possible then it’s worth approaching a secured loan lender. Out of the three this is normally the most expensive option, but the lenders are flexible in who they lend to.
Another option could be an unsecured personal loan but these generally have a maximum loan of £25,000, with repayment terms between 1 – 7 years.
How do you apply for a secured loan?
To be eligible to apply you’ll need to be a homeowner with an existing mortgage and sufficient equity. This is because a secured loan uses your property as security. Consequently, if you don’t keep up the repayments and fall into default, your property could be at risk.
It’s important to be sure that a secured loan is the right option for you.
For that reason we recommend speaking with a mortgage broker. They can quickly assess your situation and guide you to the right option.
Your options could be:
- Further advance
- Remortgage
- Secured loan
- Unsecured loan
- Bridging loan
Respect Mortgages has access to one of the largest and most experienced independent mortgage brokers in the UK.
Their specialist advisers will be able to provide the help that you need, and locate the best deal from the whole market, wherever you live.
