4 Things to Look at When You Compare Secured Loans

Melinda (Milli) Haine Melinda (Milli) Haine | Loan Underwriter

Getting a secured loan using the equity in your home is a matter of leveraging that equity along with your income to borrow significant amounts of cash that can be used to finance everything from home improvements to debt consolidation. But as with any other financial product, all secured loans are not created equally. Some are better than others and vice versa. Anyone looking to compare secured loans should keep this in mind.

You can make your own comparisons by using any of the reputable comparison websites available online. Furthermore, some websites give you direct access to lending sites where you can apply for your loan. If you are ready to compare secured loans, here are four things you should pay special attention to:

1. Headline Rates

Headline rates are essentially representative APRCs. What does this mean? Well, let's break it down into two components. The APRC, as opposed to the older APR, includes the total cost of borrowing including both interest and all fees and charges. It is measured on an annual basis. That means an APRC of 4.5% charges 4.5% of the total outstanding balance annually. A simple way to calculate an average it is to take the rate, divide it by 12, and then multiply your outstanding balance by the result.

As for the term 'representative', it refers to the fact that the rate is not guaranteed. Lenders are only required to offer that rate to 51% of the applicants who meet qualification requirements. Those who do not meet requirements, as well as the other 49% who do, can be offered higher rates.

2. Loan-To-Value Ratios

The second thing to look at when you compare secured loans is loan-to-value (LTV) ratios. Many websites advertise MAX LTVs just to stay on the high side.

LTV is the percentage of equity you are allowed to borrow against. If you had £50,000 in equity on a loan with a 50% LTV, the maximum amount you could borrow would be £25,000. Please bear in mind that a comparison website that advertises maximum LTVs is not guaranteeing that every borrower will qualify for that maximum amount. In all likelihood, only those with the best credit will be eligible.

3. Term Lengths

The term of a secured loan is the amount of time you have to pay it back. A lot of the websites advertise both minimum and maximum terms just to give customers a range to look at. These numbers by no means guarantee anything. They also do not take into account the fact that some lenders assess early repayment fees. Advertised terms are only intended to help borrowers find lenders whose terms are within their range.

4. Loan Amounts

Loan amounts are the last thing to look at when you compare secured loans. Again, many websites advertise both minimum and maximum. These numbers show the upper and lower limits of how much you can borrow. This figure is important if you have a particular need in mind.

For example, let us say you need a £50,000 loan to complete a major home renovation project. There's no point in even looking at a lender whose maximum loan amount is just £35,000.

When you compare secured loans using a comparison website, bear in mind that the numbers you see are just estimates. There is no way to get hard and fast numbers without actually making application and receiving a loan offer. As always, make sure you understand what you are doing before you sign a secured loan contract. Once you sign, you are expected to meet your obligations.

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