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Secured Loans - FAQ’s
This information is provided to inform customers, who might be considering a loan, of some of the key questions and answers, allowing them to borrow with confidence. This document should be read in conjunction with any paperwork issued by the lender, which will take legal priority.
What if I already have a mortgage on my home?
Is a secured loan better than an unsecured loan?
Can I change my mind and cancel the loan?
What happens if I want to pay off my loan early?
What happens if I miss repayments?
Should I take insurance to protect me in the event of death, sickness, accident or unemployment?
What if my application is rejected?
What are Credit Reference Agencies?
General
If you are in any doubt as to the meaning of the loan agreement, any clause or wording, we suggest you should seek independent legal advice.
Borrowing money and securing any loan against your property should be considered carefully, particularly whether you can afford to meet the repayments over the full term of the loan. Lenders and brokers have a responsibility to help you decide if a loan is affordable.
What is a "Secured Loan"?
This is where you give security to a lender by, giving them rights over your property. This will be a further mortgage over your house or flat. If you fail to meet agreed payments on the loan the lender can ask the courts for permission to evict you from your property. The lender may then take possession of the property and sell it to repay the loan. If you do not raise sufficient funds from the sale you may remain liable for the remaining debt. Repossession is only sought by lenders as a last resort. Customers who are encountering difficulty should do all they can to maintain repayments and contact their lender at the earliest opportunity.
What if I already have a mortgage on my home?
You can have more than one mortgage. If you have "equity" in your property, (it is worth more than the outstanding mortgage debts) you can give another lender a 2nd or 3rd "mortgage" or "charge" over your property. This may result in you owing more in total than the value of your property.
Is a secured loan better than an unsecured loan?
The amount you require may be more than can be borrowed unsecured. Secured loans are usually available over longer time periods than unsecured loans, and the interest rate may be lower. However there will be costs or fees associated with a secured loan. Also as the loan may be repaid over a longer time you might pay more interest in total, despite the monthly repayments being lower. If you are unsure, speak to a broker who can explain the upsides and downsides of both.
How can I compare loans?
You may wish to compare the repayment periods available, costs and fees, the monthly repayments and whether the amount on offer is what is required and affordable. A significant factor to consider is the annual percentage rate of charge (APR). This figure is calculated to provide a true cost of the loan, for comparison purposes. Usually, the lower the rate the better. This APR includes the rate of interest payable and any fees and charges to obtain the loan. This can either be fixed, will not change during the term of the loan, or variable, where the lender can amend the rate with valid reasons, upwards or downwards. If you require certainty for budgeting purposes a fixed rate loan may be best. You should also compare the total charge for credit, the lower figure normally being best.
Can I change my mind and cancel the loan?
As of April 2008, you will have the ability to cancel most loans within the consideration period. The consideration period is the seven clear days you are given to consider copy documents before the signable agreements are issued. However you should check the loan documentation carefully before signing. If it does not state that you can cancel, then you will not be able to. Also if you sign the forms on trade premises, it is unlikely you will have rights to cancel.
What happens if I want to pay off my loan early?
The amount of money required to clear the loan will be calculated by the lender. If you decide to pay off your loan early a number of months interest will be added to the balance at the time you decide to repay the loan. It is important to remember when repaying your loan early, that only a part of your monthly payment will have been used to reduce the capital element of your loan. Some of your payment will have been used to pay the interest; the proportion of which will be higher in the early years of the loan.
What happens if I miss repayments?
If you fail to meet agreed payments on the loan the lender can ask the courts for permission to evict you from your property. The lender will take possession of the property and sell it to repay the loan. Repossession is only sought by lenders as a last resort. Customers who are encountering difficulty should do all they can to maintain repayments and contact their lender at the earliest opportunity.
What is a loan broker?
A loan broker can work for you to locate the most appropriate loan deal to meet your individual circumstances, from a panel of different lenders.
How is a broker paid?
The broker will usually receive commission from the lender which varies depending on the amount of the loan. The broker may also charge a fee for their services, this normally being added to the loan amount and will be reflected in any APR indicated. The broker should advice you of the amount of these commissions The broker may also receive commission if you take any insurance to keep up the loan repayments in the event of death, accident, sickness or unemployment.
Should I take insurance to protect me in the event of death, sickness, accident or unemployment?
If you would be unable to repay the loan in the event of one or more of these events occurring, then it would be appropriate to consider such insurance.
What if my application is rejected?
Lenders will not go in to detail about how there scoring systems work, but if you
are refused credit you can ask them to tell you the main reason -
What are Credit Reference Agencies?
These are independent companies who maintain data on individuals credit records. They are used by lenders to assess your previous credit history and how likely you are to be able to repay this loan. You are able to ask these companies to see your credit file. They will make a small charge for this service.
Data Protection
The Data Protection Act requires companies and individuals who obtain and retain customer information to tell the customer how the information will be used. This is not just data kept on a computer, but any ordered filing system. Brokers and lender will advise you how your data will be processed.
In the event that you have a complaint, then you should address this to your broker or lender in the first instance. They will deal with your issue. In the event that you cannot resolve matters, you have the right to go to the Financial Ombudsman Service. Your broker or lender must give you details of this.