5 Interesting Facts about Secured Loans
Secured loans in the UK are somewhat different from comparable loans in other countries like Australia, Canada, and the US. Though secured lending in most developed countries is similar in a broad sense, the details can differ based on national regulations. And in the US, differing state regulations can influence how secured loans are offered.
As a UK resident, you are interested in how secured loans work here. So, to give you a better idea of what secured lending is all about, we put together a list of five interesting facts you might not know about secured loans. The more you know, the better equipped you will be should you decide to apply for a loan yourself.
Fact #1 â?? Secured Loans Have Many Different Names
Secured loans in the UK can be confusing because they have many different means. In principle, a secured loan is any loan taken out using some form of tangible property as security. Most loans in the UK are secured against property by way of equity.
Some of the other names these loans are known by include:
- second mortgages
- second charge loans
- future charge loans.
Fact #2 â?? Secured Loans Create a Second Charge against Your Property
The 'second charge' name is derived from the fact that a secured loan creates a second charge against the property that secures it. Let's say you are planning to apply for a loan using Â£100,000 in equity. Your primary mortgage lender still has a legal interest in your property because you have not yet paid off your mortgage. That makes your primary lender the first charge lender.
The lender that makes the secured loan also has a legal interest in your property. They actually file a legal document to this effect, making them the second charge lender.
Fact #3 â?? Property Repossession Is Always the Possibility
Even though secured lenders are second charge lenders, they can still repossess a borrower's property if that borrower fails to make timely payments. Repossession for secured loans is not as common as straight, first mortgage repossessions, but they do occur from time to time. That is why it is so important for borrowers to be absolutely sure their income can support additional borrowing before they apply.
Fact #4 â?? Secured Loans Involve Fees and Charges
When you applied for your primary mortgage, there were certain fees and charges you paid. You may have rolled them into your mortgage or paid them up front. Things are very similar in the arena of secured loans. There are fees and charges relating to property valuation, loan origination, and legal requirements.
Fact #5 â?? Secured Loans Are Based on Equity
Our last secured loan fact is this: the amount you can borrow will depend directly on the amount of equity you have. If you only have Â£50,000 in equity, you will not be able to borrow more than that. You might not even be able to borrow the total amount depending on your lender's loan-to-value ratio. Secured loans are great tools for borrowing large sums of money, but they aren't bottomless pits of cash.
Now you know some of the most basic facts related to secured loans. If you are planning to borrow, you'll be happy to know that banks and building societies regularly compete for business, so good deals are not hard to find if you're willing to shop around. Furthermore, a secured loan can be used to finance virtually any need you have. Use your loan to consolidate debt, make home improvements, or pay for that fairy-tale wedding your daughter has always dreamed of.
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