In the world of finance, there are a wide variety of funding options available to you. One of which includes secured loans, but when might this solution be helpful to you?
In this article, we’ll take a look at some of the most common purposes of this borrowing option, so you can see what a secured loan can help with…
What is a secured loan?
A secured loan is a finance option that works by taking a residential or rental property you own as security against the loan, which means there is less risk for the lender. This means that if you found you were unable to repay your loan, the property could be repossessed to recoup the money borrowed.
Whilst this may seem scary, it can be a saving grace for people who need funding, but can’t get accepted for unsecured loans or a further advance, or those who may need to get a bigger loan than the amount an unsecured loan could offer.
So what are some common purposes of this borrowing option?
Debt consolidation
Debt consolidation is where you combine multiple debts under a single loan. This means only one monthly repayment will need to be made.
Many people choose to do this to get greater control over their finances and minimise the risk of missing repayments. In turn, this can reduce the chance of damaging their credit profile. However, it’s important to be aware that consolidating your borrowing may extend the terms of the debt and increase the total amount you repay.
In order to consolidate debts, a new loan is taken out to pay off existing credit obligations. Whilst there are a number of different finance options that can be used, a secured loan is a common choice.
One of the main reasons for this is because securing a loan against a property can lower the risk to lenders and banks. This means that you may have a greater chance of approval; you might get a larger loan and you may be able to get a better interest rate compared to other unsecured finance solutions.
However, it can come with a big risk, as if you fail to make your monthly repayments your property could be repossessed by the lender or bank. Due to this, it’s always worth weighing your options up carefully and determining which would be the most suitable option for you.
Home improvements
Undertaking home improvements can transform your living space, whilst raising the overall value of your property.
Whilst it can be exciting taking on new home improvements, it can be an expensive venture that may require extra funding from a lender or bank.
Small adjustments such as painting or buying new home accessories are unlikely to need much funding and can probably be covered by your disposable income or personal savings.
However, larger renovations that could include multiple rooms or might involve structural changes may need additional finance. In this situation, an unsecured or secured loan are popular options, as they can enable you to get a large amount of funding to cover any type of renovation.
Typically, an unsecured loan will be the first point of call, unless a substantial amount of funding is required. However, if you’re declined for this option a secured loan can be a good alternative.
Deposits for purchasing property
Landlords and investors may look at purchasing other properties to add to their portfolio and increase their rental income. But, if all their money is currently tied up in other assets or investments, it can be challenging to save enough for a deposit to buy another property.
Property investors may therefore need to seek out a borrowing solution to assist them. In this circumstance, a secured loan is an ideal borrowing solution, due to their versatile and flexible nature.
One of the added bonuses is that the loan can be secured against a rental property you own, meaning you don’t need to put your own home at risk. This is commonly known as a buy to let secured loan.
If renovations are also required on the new property, you may be able to borrow extra so that you can cover both the deposit and the cost of the works.
Summary
To sum up, a secured loan is a versatile borrowing solution that can be used for a wide range of different legal purposes. Some of the most common purposes are debt consolidation, home improvements and deposits for purchasing another property. So, if you’re in need of funding for any of these reasons, it could be a useful option to consider.
The Loans Engine is a trading name of Central Loans Limited, registered in England 04205508. Authorised and Regulated by the Financial Conduct Authority. Firm Reference Number 708606. Certain buy to let loans are not regulated by the Financial Conduct Authority.
