Whats the Best Way to Compare Second Charge Loans?

Michelle Tuvey Michelle Tuvey | Loan Underwriter

Owning a home not only provides you with a place to live, it also affords you something that you can use as a financing tool. For example, second charge loans can be taken out against the current value of your property in order to pay for home improvements, retire higher interest debt, pay for a wedding, and so on.

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Also known as a secured loan or homeowner loan, the second charge loan is so named because the lender puts a second charge on your property behind the primary mortgage company. Should your home be repossessed and sold for whatever reason, the primary mortgage holder would be paid off first. The holder of the second charge would receive any funds remaining.

Your Home as Collateral

As attractive as secured loans are, consumers need to understand that they are putting up their homes as collateral. This means that you are using the equity in your home as a guarantee that the money you borrow will be repaid. In the event of default, you would still be required to repay any balance not covered by the sale of your property.

The upside to this scenario is that secured loans tend to have lower interest rates as compared to unsecured loans. While you might be paying 12% or more on a credit card, secured loans are offered at substantially lower rates. Banks are willing to do this because of the collateral you provide.

Comparing Multiple Lenders

You should by all means use our website to compare multiple lenders and loan products. It goes without saying that shopping for the best loan is as important as shopping for car insurance, mobile phone plans, and energy. Here's what you should be looking at during your comparison:

  • Annual Percentage Rate – Most of us are familiar with the annual percentage rate (APR). This is the amount of interest paid annually on the outstanding balance of a loan. The lower the APR, the better it is for you.
  • Representative APR – The representative APR is not the same as the standard APR. Representative APR is a combination of interest and the known, upfront cost of borrowing – including bank fees and charges. This number gives you a more accurate picture of the total cost of borrowing.
  • LTV Ratio – Lenders use something known as the loan-to-value (LTV) ratio to help determine how much a person can borrow. Whatever this number is represents the percentage of your equity you are able to borrow against. An 80% LTV ratio means you can borrow up to 80% of the total equity in your home.
  • Loan Terms – The loan term is the amount of time you have to repay what you borrowed. Secured loans typically have terms between 5 and 25 years. Keep in mind the longer-term incurs more interest, even if it does have lower monthly payments.

New MMR rules require banks to be very strict in determining eligibility and affordability for secured loans. Be prepared to answer a lot of questions and provide a lot of information before being approved for a loan.

Using Your Money

If you are approved for a secured loan, you will have a substantial amount of money that you can use for various purposes. You might consolidate all of your credit cards and personal loans for the purposes of better budget management. You might use the money to add on to your home or make the necessary improvements. You might even decide to take a holiday.

Regardless of what you use the money for, second charge loans are very versatile financing tools that let you take advantage of the equity value in your property. Their affordability and easy accessibility make them very popular among UK homeowners with established equity.

If you would like some help if finding the best loan deal to suit your individual circumstances, assistance in comparing loan offers or need our expertise to create and submit an optimised application to ensure the lender reviews your case in the best possible manner just call our friendly team today.

Remember we work for you, not the lender, so your needs are always at the forefront of everything we do.

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