Why Secured Loans for People with Bad Credit are Crucial?

Alex Parsons Alex Parsons | Secured Loan Expert

Would you agree that knowledge is power? If so, gaining as much knowledge as you can about secured loans for people with bad credit gives you the power to obtain long-term financing while also working on repairing your credit. That is what Secured Loan Expert is all about; helping you make the most of the equity in your home to secure the cash you need.

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On this page, we will lay out the fundamentals of secured loans and how these work. Suffice to say that as far as consumer financing goes, there are few options giving homeowners the flexibility and borrowing power offered by a secured loan. We encourage you to learn as much as you can before you begin searching for an affordable loan product.

Secured Loan Definition

A secured loan is a very specific form of consumer financing based on the principle of offering collateral in order to borrow. Collateral is tangible property that the lender can take possession of in the event of default. In the case of a secured loan, collateral is usually the equity in your home. Your application for a secured loan constitutes your agreement to offer your home as collateral against the debt.

The amount you will be able to borrow will be no more than the equity you have already established. Equity is merely the difference between what your home is worth on the retail market and what you still owe on your mortgage. You will not be able to borrow any more than that.

LTV and Representative APR

The two most important terms relating to secured loans are LTV and representative APR. LTV is an acronym that stands for 'loan to value'. This number is expressed as a percentage (or ratio). It is important because it tells you how much the lender is willing to give you based on equity. For example, an 80% LTV ratio means you will be able to borrow no more than 80% of your existing equity.

Representative APR is also important because it tells you the total cost of borrowing over the life of the loan. Representative APR is not the same thing as annual percentage rate (APR). The APR is the amount of interest you pay on your outstanding balance every year. Representative APR is a combination of that interest and all of the other charges assessed by your bank. It is a more accurate representation of the total amount of money you will spend repaying the money you borrow.

Second Charge Loans

Consumers need understand that secured loans are also known as second charge loans in the UK. In other words, the bank that approves your loan application will file a second charge against your property; the first charge is held by the bank that holds your mortgage. Should your house be repossessed and sold, your mortgage holder would be paid off first. Whatever remains would go to the bank that gave you the secured loan. If there is not enough money to cover both debts, you will be responsible for the remaining balance.

This one aspect of bad credit homeowner loans dictates there is some risk involved with borrowing. Be absolutely sure you can afford your monthly payments before applying for a loan. Falling behind could mean losing your house to repossession. If you do not have a regular monthly budget in place yet, you should also get that taken care of before borrowing.

We strongly recommend secured loans for people with bad credit, as long as they have corrected the issues that led them to past financial troubles. A secured loan is a great vehicle for providing long-term funding and, at the same time, may form the beginning of the process of repairing bad credit.

Our team of experts offer their advice freely and without obligation so you can take advantage of our expertise to find and compare the best deals from the whole of the market in just a few minutes. Our experts will help you compare the best deals on offer side by side and once you have chosen the right loan for you will prepare an effective application and submit it to the lender on your behalf. Our team will manage the process through to approval of the loan and ensure that you are aware of all costs before you make any decision to go ahead.

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