FLEXIBLE LOANS
If a borrower wishes to have some flexibility to the terms of a loan it is necessary for the loan to be secured to give the lender the required confidence. This is usually done by taking a second charge on the borrower's property.
It is called a second charge if the borrower already has a mortgage on his home. Amounts of £3000 to £100,000 are usually available under these circumstances and are known as secured loans.
Monthly payments of an agreed amount over an agreed period are arranged at the commencement of the loan. The period of the loan can be between three and twenty five years. If the circumstances of the borrower change and he should wish to settle the loan earlier than arranged a penalty charge may be made. Different lenders may have different policies with regard to early repayments.
Interest, measured by the Annual Percentage Rate (APR), will be charged on the sum borrowed. The APR and the term available will all depend on your own circumstances and the lenders view of your ability to repay your loan. 125% of the value of your property can be lent by some lenders (including the amount outstanding on any original mortgage).
APR's are quoted as a typical rate by some lenders and these are only a guide, as any exact rate offered will be on an individual basis. The best thing is to compare the APR's of different loans, as it can be the best way of deciding how competitive they are.
It is obviously going to be easier to acquire a secured loan, in general terms, than an unsecured loan. By securing a loan on your home the lender is more likely to be willing to supply the loan. This, of course, protects the lender in the event that the borrower is unable to make repayments. Obtain a loan by all means but remember that it must reduce your outgoings sufficiently to enable you to make the repayments comfortably.
Borrowers who have recently changed jobs, are self employed or who have a poor credit history will find it easier to obtain a secured loan. It is also more appropriate for larger amounts where a greater period is required to repay the loan.
Applying for a secured loan
Depending on the lender, this can be done via their website, by telephone, by visiting a branch office or by written application. A quick assessment usually takes place, although the Consumer Credit Act regulates loans under £25,000, which requires a consideration period of seven days to be given to ensure that you are happy with all the terms and conditions that apply.
When assessing an application three main criteria are considered by the lenders:
1. Income and affordability - to determine whether or not payments are capable of being maintained by the borrower to repay the additional finance.
2. Equity - to assess how much the loan can amount to given the value of the security offered.
3. Credit status - to take into account county court judgments, mortgage arrears and defaults.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All loans and mortgages are secured on property. Think carefully before securing other debts against your home.
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