Getting a secured loan need not always be expensive. Here are some tips to apply…
In some cases, obtaining a secured loan might be the only option left. If this is the case for you, follow these steps to find the best loan for your needs.
Talk to Your Existing Mortgage Lender
If you have a good record with your existing lender, chances are they may be happy to offer you special terms. While it may not always be the cheapest option, it’s a good starting point for comparison.
In the UK, there are a number of trusted websites that offer free secured loan price comparisons, such as Money Supermarket. You simply have to enter the amount you want to borrow, your contact info and your home details, and they’ll show you which the cheapest lenders are. Keep in mind though that the quote doesn’t include PPI.
Check Before Repaying Early
Secured loans are generally not as flexible as unsecured loans, and it can be very costly to overpay and clear off your debt early. Because it often isn’t allowed, it’s important to work out an affordable payment scheme. If you happen to get some cash and suddenly can afford to pay off the loan in full, you should only pay interest up to that date. However, you need to examine the following penalties.
Redemption penalties are charged if you pay off the loan early and used to be a major problem for those with existing secured loans. However, for new loans amount to less than £25,000, these penalties are legally limited to only two months worth of interest. There are no maximum limits for larger amounts and the penalties can be more expensive.
Rule of 78
A potential hidden penalty used to come for loans of under £25,000 from ‘rule of 78’. This is a formula which allocates repayments towards interest rather than capital. If you pay right after you borrowed, it could mean paying back more than the loan itself.