Profitable borrowing options

As per the recent speculations by a leading financial website, there are over 1,000 secured loan products in the UK market. Most of the high street lenders offer secured loans and are turning cautious when it comes to granting unsecured loans.

Due to the increasing concern over bad credit defaults, HBOS has cut its unsecured personal loans by 4pc to £6.6bn. Lenders in the UK market, then be it the high street bankers, private lenders or the online lenders, prefer to grant cheap secured loans to the customers. Presence of security reduces risk involved for the lender in the loan deal.

For availing cheap secured loans, the borrower is required to offer his home as collateral. The amount that can be borrowed differs from lender to lender, as per as the credit policies. Normally, secured loans range from £3,000 to £250,000. The lender calculates the loan amount by evaluating the equity of the borrower's home.

The lender can provide up to 125% LTV on cheap secured loans. However, if you have adverse credit the lender will only in most cases go to 90% of the home equity value. The amount that can be borrowed, the term available and the Annual Percentage Rate (APR) of secured loan depends on the following:

• the market value of your property- all debts against the house (i.e. home equity)
• Creditworthiness of the borrower (that depends on your credit score, DTI ratio etc.)
• Your personal profile (like job status, disposable income, number of dependents in the family etc.)

The greatest advantage of cheap secured loans is that they attract low APR than any other loan product in the market. The early redemption penalties levied on cheap secured loans is less and one may earn flexible repayment options as well. A secured loan is the second charge on the property. Secured loans work in the same way as the capital and interest mortgages do. Still, people prefer availing secured loans. The main reason people take a secured loan out rather than re mortgage is this is ideal for people that need to raise capital for the equity in the property but the redemption penalty for re mortgaging is to high.