Everything You Always Wanted to Know About Secured Loans

By: Mary Simone

Since the very first bank in the world opened its doors in 14th century Italy, lenders have been asking for some sort of collateral in order to lend a borrower a sum of money. If the borrower doesnít repay the loan, the lender merely takes the collateral as payment. This system of borrowing money is now referred to as a secured loan in the lending industry and is practiced by a vast majority of financial institutions around the world.

Now that you know what a secure loan is, letís go over some of the details of such transactions. For instance, there are many different types of secured loans, each requiring something a bit different from the borrower and lender. But no matter which type of secured loan you choose, they all have a few things in common:

1) The APR, or annual percentage rate is the amount of money charged to the borrower by the lender for the service of providing the loan. The APR will be different for each type of secured loan available, but will mostly depend on the credit history of the borrower and the amount of equity available in the collateral. The poorer the credit history, the higher the APR. The less amount of equity (value of the property that doesnít have a loan against it), the higher the APR. The higher your interest rate is, the more money your payment will be each month.

2) The amount of money you borrow will also affect your payment amount. Secured loans generally are usually between £3,000 and £50,000, but some lenders have been known to go as high as £250,000. A monthly repayment schedule is usually calculated before the loan is signed for (with all details, like loan length in years, payment date and amount) given to the borrower in writing. Some secured loans may have a fee attached if the note is paid off too early. This is referred to in the industry as a prepayment penalty.

3) You need to know that there are governing laws in place to protect you in the secured loan industry. All secured homeowner loans are subject to the Consumer Credit Act of 1974. This act contains strict guidelines as to how money is lent out, covering loans up to £25,000. (Loans for greater amounts are unregulated). Before such a secured loan is granted, you will have to sign a legally binding credit agreement for the terms of your particular program. A consideration period of 7 days is to be granted to you by the lender.

4) Applying for a secured loan has never been easier, thanks to the World Wide Web. Long gone are the days of traveling from bank to bank to find the best loan rates and terms, as you can simply fill out a few forms and submit. There are many websites that will actually complete the loan hunting for you; you just need to know where to find them.

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