A secured loan has the potential to be a real lifeline in times of need. It can also be a surprisingly flexible and cost-effective facility for a wide variety of everyday purchases.
Across the UK, more homeowners and commercial customers than ever before are exploring the benefits of secured borrowing. But even today, there are several major misconceptions that continue to cause confusion.
If any of the following have marred your motivation to consider taking out a secured loan, it may be time to reconsider the whole thing:
1. Secured Loans are Just for Debt Consolidation
Debt consolidation is just one potential application for a secured loan. Understandably, it is one of the most popular uses for secured loans, offering an effective solution for individuals and businesses looking to consolidate debts.
Along with debt consolidation, secured loans can be used for almost any legal purpose whatsoever; funding home improvements, covering the costs of larger purchases, paying tax bills, bridging financial gaps at work and so on.
2. Secured Loans are Primarily for People With Adverse Credit
Securing a loan against assets of value makes the transaction significantly lower-risk for the lender. Consequently, secured loans are often open to those with adverse credit, or a history of bankruptcy.
This does not mean that they are exclusively designed for customers with poor credit. A good credit score can be just as important in ensuring you get a competitive deal on a secured loan as with an unsecured personal loan.
More importantly, interest rates and borrowing costs on secured loans can be significantly lower than those of a comparable unsecured loan.
3. It Makes Sense to Borrow as Much as You Can Qualify For
Basing the loan amount to apply for on the maximum sum you can borrow is never a good idea. Irrespective of how competitive the loan may be, larger loans always add up to higher overall borrowing costs.
This means that borrowing more than you need shall ultimately cost you more long-term. You may gain access to a significant sum of money to spend as you wish in the interim, but will spend more if you had borrowed less.
4. You Can Only Use Property as Security for a Loan
Most lenders have fairly strict rules regarding the assets they are willing to accept as security. Oftentimes, secured loans are issued exclusively against property, either the home of the applicant or a commercial property.
However, there are some lenders including bridging finance specialists – who are willing to consider a much wider range of assets. Examples of which include vehicles, jewelry, watches, business equipment and even company shares.
5. There are Hidden Fees and Costs Involved
There is no longer any allowance for lenders to get away with stinging customers with hidden fees. Government policy is clearer than ever with regard to the mandatory provision of full fee disclosures, prior to the transaction going ahead.
All fees and borrowing costs will therefore be detailed and discussed by both your lender and your broker. If you have any doubts or concerns, you must ensure they are raised and addressed before signing your loan agreement or by using an online secured loan calculator to get an accurate estimation beforehand.
