Understanding Secured Loans and Its Implications

Thursday, December 4, 2008

Understanding Secured Loans and Its Implications

Author: Gen Wright
Homeowner secured loans are dubbed as second charge loans or second charge lending. Tracing the roots, a charge was registered on land registry each time a credit is secured on the property. Mortgage lenders get the honor of possessing the first charge. Secured loans have the second charge. This explains the coinage.

Secured loans are repaid on a monthly basis. This is the general practice but one can vacillate from the payment structure. Sometimes the lender comes to a consensus with the borrower over other methods of payments. These can be over payments and lump sum payments. In few cases it gets even better. A borrower can withdraw funds from the account; this can be done on a rolling basis given that one stays within the credit limit.

Secured loan lenders serve generous offerings. This is only apparent generosity because at the end, it does not make much difference. The bounty can come in the form of payment holidays or payment interruptions. This allows a borrower the opportunity to defer payments. This implies taking a structuring break. A borrower can also opt for a payment holiday at an intermediate stage of the loan. Interest though, invariably keeps mounting and hence we get larger payment figures when we opt to pay again.

The point as to how much one can borrow largely depends upon one?s credit rating and calculations pertaining to payment-power. A person can end up borrowing higher than what he initially imagines owing to the lack of conventional income multiples. With a stable credit rating, borrowing a sum that is 125% of the value of a property is not unheard of. Poor credit rating can still let one amass 90% of the property value. The largesse includes existing mortgage plus the secured loan and must be underwritten. Secured loan can be made available anywhere between 5000 pounds and 250000 pounds.

Though the loans are lucratively placed and highly luring, they also ask of reasonable credit history and rating. So in the event of one?s frequently changing address or lacking credit history, the loans become difficult to be procured. Further, self-employed people find it comparatively harder to avail such loans.

Lenders are also known to indulge in mercy-calling. They thus help people with poor circumstances attain the benefit of secured loans. This is on a high interest rate though.

Processing and approval are generally done expeditiously and bend towards being consumer-friendly. Datasheets reject or approve of loans immediately. This is because the credit report of each citizen is available at a small click of the mouse. Furthermore, the processing bit is completed through subtle verifications. People failing in such verifications can still avail off the loans given that they can attest to their mode of repayment. Such people can face severe financial problems in the event of default.