Monday, March 23, 2009

Benefits of a Secured Loan

By. Jenny Austin

Secured Loans are now becoming a more common and cheaper way of borrowing for people who own their own property.
More and more people are now starting to consolidate their credit, and use secured loans for other purposes, like, home improvements, or to fund a major purchase, or even pay for a special wedding experience. Only 8 years ago, there were very few people taking out homeowner loans secured on their property, as it was seen as a desperate way of borrowing. However now people are starting to see the benefit of taking equity out of their property in the way of a secured homeowner loan for consolidation reasons, and other such purposes.
The main benefit of securing a loan on your property is that it is cheap!
The reason that secured loans are so much often cheaper than unsecured loans or credit cards is because, It is secured on a property, usually as a second charge on a residential property that the person lives in. It is also a fixed loan, and not revolving credit. The fact that it is fixed on the property gives the lender security over the property, so that if payments aren't made on the homeowner loan, the lender would look to place a default on the client. If payments are still not brought up to date, then the lender could look to take possession of the property, and offset it against the debt taken out on it.
All in all the lender has the means to get their money back out of the property that the loan is secured upon to enable then to clear the balance off.
Many secured loan lenders will lend up to the full value of the property. Depending on credit rating, some lenders will even lend up to 125% of the value of the property that they are securing the loan on. For this to be applicable, not only a good credit rating is asked for, the lender may also ask for additional information, and they will be very careful in assessing the value of the property in which the lend on.
There are many lenders that will charge a low rate of interest for a secured homeowner loan , however, if you decide to redeem the homeowner loan before the end is due (say 25 years for example), the lender may charge an ERC (early redemption charge) so that they are able to make their funds up from the low rate. However if the client does not pay the loan off early, then they won't get the ERC, and the lender would have made interest for the full period of time (say 25 years). That’s a lot of interest!
Secured loans usually take in the region of two - four weeks to complete, however for some people in certain circumstances that is not quick enough, so they would prefer to look at taking out a Bridging Loan to enable then to receive the money earlier. Bridging finance can complete in a matter of days, it has been known for certain bridging finance loans to complete on the same day as application, as long as some of the work has been done already, (for example a valuation).


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