What is secured loan agreement?
A secured loan agreement is a form of loan offered to customers who are willing to secure the money they borrow against an asset they already own. The majority of secured loan agreements are against equity in the home, although some people will use other assets, like a car, jewellery or artwork.
The secured loan agreement lender will have a list of assets that they will accept, although the final decision will be based on your credit history, and the lenders previous experiences with using that sort of asset as leverage on a loan.
A secured loan agreement is popular with customers who are looking for a high value and long term loan, but who don’t want to pay a fortune for it, and a secured loan agreement will have a lower interest rate than a personal loan, or an unsecured loan as there is less risk to the lender.
How does a secured loan agreement work?
When you take out a secured loan agreement, you will have to work out how much money you want to borrow. To work out how much money you can borrow, you will need to know the value of your asset, and how much money the lender is willing to lend, based on their lending limits and your credit score.
The most common asset used is equity in the home, and this is a relatively simple figure to work out. You simply take the outstanding value of your mortgage, away from the value of your home, and the remaining figure is the amount of equity you have in your home. You will rarely be allowed to borrow more than this, so you can use this as a good guideline before even applying for a secured loan agreement.
What would I need a secured loan agreement for?
There are many reasons why customers need to borrow large amounts of money. They may wish to consolidate existing debts into a small monthly payment, or to extend their home.
Customers with large credit and store card balances will often be paying very high levels of interest. A customer can take out a secured loan agreement, and use the money to pay off those debts, instead repaying them as a secured loan over a period of time with a smaller interest rate.