Category Archives: Home Mortgage
What is a Secured Loan and what are the risks? (Page 1 of 2)
A Secured Loan is a loan secured on the homeowners property very much in the same way as a Mortgage is. A Mortgage on a property is known as the 1st Charge a Secured Loan therefore becomes the 2nd Charge. If a Secured Loan is never paid then obviously the Homeowners home is at risk. With the Mortgage company having the 1st charge they therefore reclaim their money first. A Secured Loan Lender would then follow as they are the 2nd charge. It is worth remembering that a Mortgage and Secured Loan Company would only ever repossess a property as a last resort.
A Secured Loan is ideal for Homeowners who are looking to raise finance by using their home as security. Traditionally a Secured Loan can provide Homeowners with a lower APR than that of an Unsecured Loan. Obviously a Loan Lenders APR varies depending on the personal circumstances of the applicant. A Secured Loan can be used for a variety of purposes. The most common Secured Loan purposes are for Home Improvements and for Debt Consolidation.
Home Improvement Secured Loan
A loan that is secured on the applicants home address for the purpose of Home Improvements. The loan can be used for a new conservatory, renovations, extension or simply for double glazing. Almost any form of home improvements can be funded by a secured loan. You may find that some secured loan lenders will require proof of what you will be using the funds for. This can be provided by simply gaining a written quote from someone who you are looking to have the work done by. Chances are a Home Improvement Secured Loan will actually increase the value of your property so it will be money well invested.
Debt Consolidation Loan
A loan that is secured on the applicants home address for the purpose of Debt Consolidation. The loan is generally used to consolidate (pay off) all existing credit by putting it into one secured loan and this generally reduces the monthly payments and therefore frees up more of your monthly income to use for more exciting purposes than clearing credit cards, store cards, loans or hire purchases! Sometimes the only way in which the monthly payments can be reduced is by taking the Secured Loan over a longer period than what the existing credit is currently on. This can increase the amount in total that you will pay back but customers who take a Debt Consolidation Loan generally are more interested in the reduced monthly outgoing on credit.
A Secured Loan can be used for other purposes besides Debt Consolidation and Home Improvements. They can also be used for a Car, Holiday or Wedding. Generally Secured Loan lenders do not raise finance for Business. For a Business Loan it may be a better route to contact your local Bank or Building Society. Why would I want a Secured Loan instead of an Unsecured Loan?
There are many reasons why.
Repayment Period A Secured Loan can normally be taken over a longer period than that of an unsecured personal loan. Unsecured Loans can normally only be taken over a maximum of 7 or 10 years. Some Secured Loan Lenders will allow the applicant to take the finance over a 30 year period and most will allow the finance to be spread over 25 years worth of payments. Obviously by taking the loan over a longer period reduces the monthly payment to the applicant although you must remember the longer you take the loan over the more interest you will pay.
Unsecured Personal Payday Loans Are Not a Long-Term Solution
Unsecured personal loans are sometimes called fast cash or payday loans. The good news is that anyone with a steady paycheck, even those earning minimum wage, can qualify for these types of cash advances. Pay day lending however, can be a very short and painful way out of a temporary situation.
The bad news with unsecured personal loans were payday loans is that you almost never can seem to catch up. A payday advance is extremely expensive! How expensive, you might ask? Some companies charge as much as 25% or more, every couple of weeks. This comes out to 650% for a year. But that’s not the worst of it…
Think about this:
A payday cash advance of $100 for two weeks, would cost $125. So if you pay the loan back in two weeks. You pay them the hundred dollars plus 25 dollars in interest.
So you would think that in four weeks, it would cost an it would cost you $150, right?
WRONG!
The way payday cash advance loans work is that they loan you $100, in two weeks it would cost you $125. But if you couldn’t pay the hundred and $25 in interest, they would simply give you a new loan to pay off the old one.
So for the next two weeks, you would have $125 loan and owe $31.25 in interest.
So a 100 loan, for one month would actually cost $156.25. Here’s a quick look at it just three months for a hundred all alone could cost.
Weeks w/Loan Amount Owed
$100.00
2 weeks $125.00
4 weeks $156.25
6 weeks $195.31
8 weeks $244.14
10 weeks $305.18
12 weeks $381.47
So after four weeks. The typical payday loan of 100 dollars would cost $156.25. After two months it would cost $244.14. And after just three short months. A cash advance of only $100, would cost you $381.47.
This figures out to 650% interest over one year! That’s not the annual percentage rate or APR, but just flat interest-rate.
The last problem with personal payday type loans is that most want access to your checking or savings account. They say this is to make it easier for you but it also allows them full access to your bank accounts. If there’s an error, you fight them about it all the while they take your money.
If however, you are in need of a fast cash loan and are able to pay it off on time, there are several programs that offer your first loan free of interest. I you need a one time short term unsecured personal loan, maybe one of these no interest one-use options are for you.
Remember though, the payday loan businesses will continue to contact you trying to get you to get back in debt. You must be able to ignore these types of marketing plans that would only end up hurting you long-term financial future. Just if you decide to use a payday loan, just make certain you have a plan to pay it back on time.