Saving money and taking out loans does seem like contradictory actions, but it is possible to achieve both at the same time. Loans and credit are often associated with financial hardship and a time when money might not be readily available. This is not strictly true, there are times when taking out a loan or putting a payment on a credit card could be tactical and actually help you save money in the long run.
We are looking at when a secured loan could save you money and how best to use them to exploit the biggest benefits and the biggest savings!
What Is A Secure Loan?
A secured loan is a source of credit that is secured by an asset. This means that any money that is borrowed, is done so against an asset which is most likely a property. This means that it is less risky to lenders and they are more likely to offer lower loan rates, ultimately saving you money on the cost of a loan. A secured loan does usually have a minimum threshold though, some lenders start at $15,000 minimum but it’s more likely to be about $25,000. Caps on the amount that can be borrowed are really quite high but will be subject to the value of the asset you are willing to make available. This could be anywhere up to $100,000.
Many might get a secured loan thinking it is safer than other financial products. This is actually a little mis-led because, as with all financial commitments you may make, there is risk involved. Voluntarily putting the equity in your house up to secure a loan means that if you miss payments and default on the loan, the creditor will make a claim on your house. The penalties for missing or late payments, and the threshold for when a creditor has the right to claim your asset, will differ from lender to lender. Some creditors may be more strict than others and it may be worth comparing the best secured loans companies to ensure you feel confident with your agreement.
Don’t fret too much if you know you are not going to be able to make your repayment dates, as long as you contact the lender as soon as you are aware of this. FCA regulated lenders (which all the best secured loan lenders will be) are required to follow protocol and may be able to provide advice to help you get a grip on your finances. Moreover, when you are dealing with the financier directly, they could work to arrange alternative repayment dates that suits your financial situation a little better. This might be just after payday, for example, rather than half way through the month.
What Can Secure Loans Be Used For?
Secured loans are flexible financial products that can be used for almost everything a personal loan can be used for, but with the added benefit of having higher borrowing limits and providing borrowers with access to even more cash when they need it.
Transferring Unsecured Debts
Just like an unsecured personal loan, a secured loan can be used for debt consolidation. This means that you can transfer multiple debts into one place, making them easier and tidier to manage. There are so many benefits to using a secured loan in this way:
- Transferring your debts into one place helps you save money as you are less likely to incur multiple late fees and other costs as multiple debts are hard to keep on top of.
- Secured loans are typically available for lower rates and are cost-effective for debt consolidation because they could work out so much cheaper throughout the duration of the loan, when compared to the cost of multiple other loans.
- The high borrowing limit means you are likely to be able to transfer all outstanding debts and just owe the one creditor, rather than several. Standard unsecure loans might not be enough to cover outstanding debts.
The risks should not be totally disregarded but shopping around for the best secured loan rates and being confident that you can meet the repayment schedule as agreed will not put any of your assets at threat.
Home Owner Loans & Home Improvements
Secured loans are sometimes referred to as a homeowner loan. This is because the most common asset that is put up is the equity that you own within your property. Moreover, one of the most common reasons people take out a secured loan is so that they can spend the money on home improvements, home repairs and emergencies or other property-based expenditures.
This may seem a little frivolous, especially if you are trying to save money, but there are several instances in which a secured loan for changes to your property could save you money:
- Upgrading For Efficiency – Whether you are still using outdated appliances or have single glazed windows and doors, taking out a secured loan with a good rate could help you to save money on your bills. Making changes to your home could save you around $1000 per year on energy costs.
- Moving Home Is Expensive! – Reports differ, but moving home is an extremely expensive affair. Taking out a secured loan and making changes to your home could mean you don’t have to move at all. With higher borrowing limits at a low rate, you could build a brand new bedroom, convert your attic or build an outbuilding – whatever you feel is necessary. What’s more, this kind of spending is an investment, you will get a return when you do eventually feel it is necessary to move, whereas when you move home, the money is just spent and lost.
- Bulk Buying Saves Money – Taking out a loan to completely renovate an area of your home or property could be much more efficient than saving up and paying for the works little by little. You will also get a much quicker benefit of your new, upgraded home.
Secured Car Financing
Although this is not the kind of financing that puts money directly into your account, car financing is often a type of secured loan. This works because a creditor will pay a business for your vehicle and you make repayments to them. When the repayment terms are met and all the money is paid off, you will own your car. Until that point, it technically belongs to the creditor. These may be independent or a branch of the trader where the car was purchased.
Firstly, it is vital to shop around for the best deals for car financing, but in many cases, this is the cheapest option for those who cannot foot the full cost of a new car. You could save money because the interest and APRs are low on secured loans, but you also have the flexibility of a lower deposit. This means you don’t have to stretch your finances too thin when you do not have the capacity or back-up cash to cope with a big deposit.
Compare Secured Loans For The Best Rates
Consumers, homeowners and savers looking for loans should always compare their financial products before they commit to them. You can either use price comparison websites, or better yet, for even quicker access to the funds you may need urgently, apply directly with a lender that is also able to act as a broker and connect you with other lenders or present alternatives that may be the most cost effective for your situation.
Comparing loans online is simple with tools such as moneysupermarket.co.uk. Savings experts recommend that consumers use two comparison tools to ensure they are not weighted or biased, for example, using a dedicated comparison tool and an independent lender that will also show you the loans available from competitors. Moreover, it is also recommended that for safe-borrowing, you should do a little investigation into a company before entering a loan agreement with them. You may be made aware of consumer complaints or could find companies that are recommended or the ones that are better left untouched because they bolt on extra fees and hidden costs!
Other Benefits Of Using A Secured Loan
Other than the potential savings on the total cost of a loan, there are other benefits for those who are considering a secured loan, or at least comparing their options.
Firstly, you are more likely to be approved for a secured loan, in comparison to an unsecured loan, especially if you have a bad credit score or it’s anything less than perfect. It’s easy to slip with your repayments on loans or forget the payment date and get a negative mark on your credit score. The consequences when you take out a secured loan can be a little more severe, but they won’t be anything too major if the payment is made quickly and the mistake was genuine. A secured loan is backed by the value of different assets, whatever that might be, which means those with bad credit can offset their risk to borrowers by offering an asset as a back up.
A secured loan is also a good option for those with a bad (or unestablished) credit score or low credit rating because they could rebuild their score. As we have already established, a secured loan is easier to obtain than an unsecured loan if your history is less than perfect. This means that if you are looking to rebuild after injunctions or harmful marks on your profile, such as a CCJ for example, a secured loan is one of the safest and low-cost ways for you to do this. In the long term, making the effort to rebuild how credits consider you as an applicant could also save you money, as you may present as less of a risk and have access to lower APRs, more advantageous interest rates, longer or extended incentives such as interest free months and other rewards or benefits that a creditor might offer to an attractive borrower.
Another advantage of using a secured loan is that it means those people with bad credit, or those who are looking to borrow larger amounts¸ do not have to find a guarantor, who otherwise might have locked in a loan at a decent rate. This allows those who do not have a suitable person to use as a guarantor to still have access to the money they need to complete their home improvement project or manage all their debts in one place, at a cheaper rate.
Although it might not be saving money, one of the most common reasons you might apply for a secured loan is because of the higher or lifted lending limits. As a secured loan is borrowed against something, a pension for example, lenders are happier to lift their limits and will often have a set minimum and maximum. This means homeowners and all other borrowers could get their jobs done in one fell swoop, rather than in installments. Ultimately, this could reduce the number of loans used and save money in the long run, but individuals would have to compare rates and also consider that