What are the Main Lending Criteria for a Secured Loan?

A secured loan can be an excellent way to obtain credit at a competitive interest rate. While many financial institution have tightened their lending criteria for secured loans in the wake of the US sub-prime crisis, you should have no problem getting a secured loan if you are a homeowner and are in a healthy financial situation.

A secured loan is when you borrow from a bank using your existing home or another valuable asset as collateral. Because lenders have the security of being able to repossess your home if you fail to keep up repayments you can borrow large amounts that can be repaid over a long period of time at competitive interest rates.

Secured loans usually range from the £10,000 mark to the £150,000 mark. If you want a loan that is smaller than £25,000 you could consider an unsecured personal loan as you will not be risking your home if you default on repayments.

If you do decide to apply for a secured loan, much will depend on the value of your home, how much you owe on your mortgage and your financial situation.

If you have a steady income and a good credit history you may be able to borrow 125 per cent of your home's value. However, loans of this size may be hard to find in the current economic climate.

If you have a poor credit history or you are self employed you will most likely face much tougher lending criteria to get a secured loan . The lender will assess all aspects of your finances to ensure you can keep up with repayments. They will most likely also want to examine your home to determine its current value. If you have a poor credit history or are self employed, be honest with the lender. This information will probably be already on record and, since the loan is secured, many lenders will be willing to do business. If you have difficulty meeting the lending criteria for a secured loan you should consider seeking the help of a broker. Many secured loans for people with bad credit and the self employed are arranged by brokers who specialise in these areas. However, be sure to compare a few products to get the best deal if at all possible.

It is vital that you keep up with repayments or you risk losing your home.

British legislation does offer some protection for consumers when it comes to financial services. All secured loans are covered by The Consumer Credit Act 1974. On smaller secured loans, under £25,000, you will be given seven days to make sure you are happy with all the terms of the agreement. If not, you can cancel the agreement within this limit.

You may want to consider a repayment protection scheme for your secured loan that will cover your repayments if you become ill, unemployed or have an accident. This will add a little to your repayments but provides excellent peace of mind.