Why use a secured loan?
Although secured loans are usually cheaper than a personal
loan, they carry the risk of you losing your property. If
you are willing to take on this risk, there may seem little
reason not to go for a remortgage or further advance instead.
But consumers are taking out secured loans in droves, so
their appeal for certain purposes is undoubted:
Raising capital
Even when trying to simply raise some additional funds,
secured loans can sometimes be the best option, though usually
because the alternatives are made less appealing for some
reason.
For instance, a borrower may already have a high street
mortgage, but could have since blotted their credit copybook
by defaulting on a credit card payment, meaning that the
remortgage options are made sufficiently more expensive
as to be unappealing.
Alternatively, the borrower could still be fairly early
on in their mortgage and still within the early redemption
penalty period, with fees that make remortgaging a non-option.
Similarly, a person's financial situation may mean that
they are unable to suffer any up front fees, which would
probably need to be paid with a remortgage.
A final reason can be due to the borrowing requirements
of the customer, particularly where the wish is to borrow
more than the property value. Secured loans can be available
for as much as 125% of the property value - something that
is unlikely to be the case with a conventional mortgage.
Term of the loan
Many people want to borrow money for a specific purpose,
without getting locked in to a remortgage over 20 or 25
years. This is often the case when borrowers are looking
to consolidate their debts without using a professional
debt consolidation company. It is relatively easy to consolidate
your debts by converting them into a single cheaper secured
loan and estimates suggest that credit consolidation accounts
for anything up to half of all secured loan business.
Furthermore, many borrowers are well into their mortgage
and are at the stage where they want to pay it off rather
than redeem and extend it. Even with a higher rate of interest,
it is possible to save money in the long term by paying
the loan off in five years rather than 25.
Speed
Secured loans complete far more quickly than a standard
remortgage since there are fewer elements of documentation
required and no valuation or solicitors fees involved. It
can normally be arranged simply by a phone call or an online
enquiry and an completion of an application form. 23 days
is the average length of time to complete a secured loan,
whereas a remortgage can easily take twice as long.
Loyalty
Although there are fewer and fewer of them, many borrowers
still have their mortgage with a mutually-owned society.
Where this is the case, they may be unwilling to move due
to loyalty or the possibility of getting windfall if the
society converted to a bank.
