Secured Loans: Mitigating your Financial Problems

By: amenda dorothy

In this competitive age, lenders have a range of financial products that can mitigate your money related problems. These financial products are available in the form of credit cards and loans. Every loan has its own utility. If you want a loan that can get you a big loan amount then you should consider secured loans. You should be aware of the benefits as well as the negative aspects of all types of loans available in the market. It will help you in selecting an appropriate loan as per your circumstances and requirements.

Credit cards and personal loans have their own limitations. You cannot rely on these arrangements if your requirements are huge. Suppose, you decide to add another floor to your home and you also want to change the existing furniture and fixtures. All this requires a lot of money. How should you proceed in such a case? Well, if you go step by step and plan everything, you can do it easily with the help of some external financial assistance.

The first step should be to ascertain what actually you want in your home. Another floor, new furniture, wooden flooring in place of existing floors and what ever you want. Then calculate the cost of carrying out these activities. Make provision for some related but unexpected expenses that may come your way once you actually start executing your plans. Now, check what you can manage to contribute with your own savings and then calculate the deficit amount. If the deficit is well above ?30,000, you have no other option but to seek secured loans. Being a homeowner, it won't be much difficult for you.

You can get up to ?250,000 by way of secured loans. These loans require you to give your home as collateral to the lender. The actual loan amount is sometimes restricted by the value of your home and your repayment capability. Loan-to-value (LTV) and Debt-to-income (DTI) ratios are important things in this respect. These ratios highlight your repayment capability and the maximum amount that you can get in form of secured loans.

Normally, a lender gives 80 per cent of the value of your home as a loan. This LTV ratio can go up to 125 per cent depending upon the individual policies of the lenders. A DTI ratio of less than 20 per cent is considered very good. If you have a monthly income of ?10,000 and your total monthly loan repayments are up to ?2,000, then it means that you have very sound repayment capability. In such cases, lenders may give you the maximum possible amount of loan.

In nutshell, the following benefits emerge out of secured loans:

&bullA big loan, generally over ?25,000
&bullLong repayment period - up to 25 years
&bullRate of interest that starts from as low as 6.5 per cent
&bullEasy and wide availability in the UK market

Secured loans are helpful when you have a bad credit history. These loans help you in reducing the adverse effect of bad credit history when seeking a loan. Usually, a lender prefers to give loans to those who have a good track record of repayments. But, it becomes easy to get secured loans despite your bad credit history. The lenders know that they can rely on security in the event of any failure on part of the borrower to repay the loan amount.

There are some limitations in case you have bad credit record. The lenders usually sanction small amount of loan depending upon the gravity of your bad credit history. High street lenders in the UK do not provide loans to bad credit holders. But, some sub-prime lenders in the UK financial market take care of the financial needs of bad credit borrowers.

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