Secured types of loans are supported by something that is of high value that you own, called collateral, such as valuables like jewellery, house, vehicle, etc.
Secured types of loans are supported by something that is of high value that you own, called collateral.
Some examples of collateral security include any valuables like jewellery, house, vehicle etc. If you have got an approval for these loans, the bank will have the deed or title of the collateral until the loan is repaid in full.
Being not in a position to repay your loan, the bank may take charge of the collateral, sell it, use the proceeds from the sale to settle your remaining loan.
The limits for borrowing finances are usually high for secured loans due to collateral security. Secured loans are of various types like mortgage loan, bridging loan, homeowners loan, logbook loans, and some types of debt consolidation loans. In the following sections, we shall discuss the various types of secured loans in detail.
A mortgage loan is one in which the real estate or property is used as collateral. The lender(usually the bank) and the borrowers enter into an agreement, wherein the borrower gets a cash upfront from the lender and agrees to pay it over a particular span of time. Often home loans are referred to as mortgage loans. Mortgage loans are usually taken by home buyers to purchase a home when they don't have enough cash in hand. These loans are also used to borrow money from lenders for other purposes using the house as their collateral security.
A second charge mortgage or a second charge loan allows you to borrow money against your existing property. They are quite similar to mortgage loans but are for people having an existing outstanding mortgage.
Your second charge loan always stays under your regular mortgage and the term of repayment could be anywhere between 3 to 25 years.
These are short-term funding options used to bridge a gap between the main line of credit becoming available and a debt coming true. In simple words, Bridging loans is an additional home loan taken on top of your existing home loan until the property is sold and the loan is closed. This simply means you have 2 loans and you pay interest for both loans during the bridging period. It is usually an interest-only payment home loan with limited term period. The interest rates for this kind of loans are usually higher than the normal rates.
Upon selling your current property, the bridging loan is converted into a home loan for the newly bought house.
This type of loans helps you to borrow money using your property. This is also called a home-equity loan, where the value of your property will be taken into consideration when applying to borrow money. Some key features of this loan include the following.
Logbook loans are loans against your vehicle. Although you can use your vehicle as long as you pay the loan, the lender owns your vehicle until the debt is paid back in full. Logbook loans are risky and expensive, and you can borrow money depending on how worthy is your car.
When taking a logbook loan, you need to hand over the car documents like vehicle registration document or vehicle's logbook to the lender. These documents will stay with the lender until the loan is repaid in full.
If you have lots of different debts and struggling to keep up with the loan repayments, then secured debt consolidation loan works best for you. Here, you merge all your loans into one single debt in order to minimise your monthly payments.
You are borrowing money against collateral to pay off all your present loans and owe money to only one single lender.
Choosing the right type of loan is very important. The type of loan you take must fit your situation so you can manage it better at very low risk. Based on the above discussion, you would have got a clear picture of the UK's loan market. This guide can help you know the various types of loans so that you can take an informed decision that will best meet your needs.