Although guarantor loans are not a traditional type of “secured loan” they are a type of loan that requires additional security in the case of a guarantor. Guarantor loans are a type of loan where you need someone to “back up” your loan and agree to pay your loan if you were unable to repay it for whatever reason. The most popular type of guarantor loan provider is Amigo loans. They are the ones you see advertised on TV and were one of the very first guarantor loan providers to enter this new market place. Guarantor loans were viewed as an alternative to more expensive loans, and for which also provided the much need added security for the bank or guarantor lender.
Guarantor loans have become very popular for those who need a loan but have little credit history (first timers) or for those who have a poor credit past, and need a guarantor to ensure they get the loan they want! Loans are available from £100- £8000 and are repaid over similar terms as a standard personal or bank loan – 1 – 5 years. The only difference is that guarantor loans are more expensive when compared to personal loans with rates as high as 50% APR, but are also much cheaper when compared with cash and short term loan providers. You can now compare most guarantor lenders online at comparison websites such as lendingexpert.co.uk who compare all the lenders togther to make it easy to see the loan rates, costs and loan details all in one place. I have counted almost 33 direct lenders who offer loans of this type, and the market appears to continue to be growing with more traditional lenders coming into the market such as Glo and Trust Two Loans.
Commercial or business loans can be either on a unsecured or secured basis. However, most banks and building socities will require security before issuing a loan. Therefore from my research most types of business loans are issued on a secured basis. Loans are either secured against the assets of the business, this may include office equipment, building, machinery, and even vehicles such as cars and vans.
Loans can also be arranged against money owed to the company, this is called Invoice Factoring. Here the lender will issue a loan against outstanding invoices owed by the debtors of the company. The outstanding invoice and credit control will then be handled by the invoice factoring company/lender.
How much can you expect to borrow?
Like other types of secured loans, business loans are no different in that lenders will only allow a maximum lending limit against the assets to be secured. For example, if you had total business assets of £300,000 then you may be able to get a loan equal to 60%, therefore with would mean a loan value of £180,000.
Like most types of secured loans, these types of loan are handled and arranged by commercial finance brokers. Brokers can advise on the market place and provide quotes for any type of business that is looking to borrow money. Commercial and business loans tend to be higher value loans with some lenders borrowing millions of pounds everyday.
Bridging loans are also a popular type of secured loan that are in most cases used to “bridge” a finance gap for a short period of time. Bridging loans are popular with house purchases and investors who purchase property via auctions. Most bridging loans are only in place for a few months until a more long term finance arrangement is in place such as a mortgage. Bridging loans are also quite expensive with set up fees of around 1-2% and ongoing interest fees of 0.5% – 3% depending on the specific type of loan you require and the security being provided.
Closed Bridging Loans
Closed bridging loans are loans that are arranged and that have to be repaid within a set time scale. For example 6 months.
Open Bridging Loans
These types of loans are as the name suggests “Open” which means that there is no set future repayment date. Most lenders offer loans on either a closed or open period basis and the type you choose will depending on why you need the loan and how you plan to repay it back.
Bridging loans are secured against either residential or commercial property on a 1st or 2nd charge basis. Bridging loans can be arranged quickly and are usually arranged with a maximum lending limit of 75% for most bridging lenders. This means if you have a property that is worth £100,000 without any outstanding loan, then you could raise £75,000 from that property as a bridging loan. That would equal 75% of the property value. Lenders will require that your property (security) is valued by a RIC’s surveyor to established it’s true mareket value before offering a loan against it.
Here is a useful video from Youtube that explains the bridging loan process in further detail
Pawnbrokers I have touched on when I discussed personal asset loans. However I think Pawnbroker loans deserve a special mention as they are one of the oldest forms of secured loan there is. Pawnbrokers have been around for hundreds of years and we’re offering loans to folk long before the mortgages and loans we see today.
Common in the old times
In the “olden day” they were many established Pawnbrokers in every major town or city thoughout the UK. lately there they have become more and more popular either offering loans on the highstreet or loans online (online pawnbrokers). The business model is very much the same, and given that banks and mainstream lenders are offering less loans than they did in the boom times, Pawnbrokers have stepped in to offer an alternative form of loan for those who have valuables to offer as secuirty. Loans can be costly with fees as much as 2% per month in interest charges on the total amount borrowed.
Loans with poor credit
These types of loans are also popular with borrowers who have a poor credit or low credit score and for people who cant get a loan from a standard lender. Pawnbroker loans are accessible as no credit or employment checks are required in the same way as an asset loan. Like asset loans, loans can be issued same day and are only to be used as short term borrowing, or until your next payday.
As discussed previously the buy to let mortgage is similiar to a normal residential mortgage, however they are used to purchase property that is to be used to let out and investment purpose. Hence the name “buy to let mortgages”. There are many mortgage lenders who offer buy to let loans as part of their range.
As buy to let has become more mainstream in recent years there has been a rise in the amount of lenders offering these type of loans. Like normal mortgages you can get fixed rate, variable and discounted BTL mortgages. BTL mortgages can be arranged direct with the lender/bank or building society or you can go to a broker who can offer advice and search the market on your behalf. Some brokers offer their services in a “no fee” basis while others will charge a fee for finding you a mortgage.
The asset loans is another form of secured loan that is secured against valuable items such as jewellery, gold and antiques. These types of loans are issued by Pawnbrokers who will value and assess your assets with the aim of providing you with a short term cash loan. These types of loans, like logbook loans are also expensive and should only be used a short term finance option. Loans of this type can be raised against anyting of value such a luxury cars, gold, and even boats and helicopters.
The TV show
These types of loans have become popular lately with rise of the TV show Posh Pawn where people in need of a quick cash loan can “pawn” their valuable to get the cash they need. My research has shown that more and more of these types of businesses are now operating online and provide a nationwide service when people can get there items valued and stored and loans issues in a matter of a few days without the need for a face-to-face meeting.
No credit or employment checks
Unlike other types of loans, personal asset loans require no credit or employment checks. If you were unable to repay your loan then your items would be sold to pay off the loan. Often loans are given at 50% of the total value of your assets. This means if you can provide assets in the region of £10,000 then you could secure a loan of £5000. You can expect to pay an initial fee then an ongoing interest fee of 1 -2% per month. Most loans are only issued for a maximum of 6 months.
Logbook loans are also a type of secured loan that unlike a convential secured loan or mortgage whereby the loan is secured against your property, with Logbook loans the loan is secured against your car, motorbike or other type of vehicle. These types of loans are generally used by people who need a cash loan quickly and who are unable to get a standard personal loan. Generally this would be because of past credit problems such as CCJ’s, or difficulties getting a loan in the past, and the lender needs a form of security in order to reduce the risk that will allow them to lend to this type of borrower.
With logbook loans you can expect to pay a higher rate of interest than a mainstream loan. Also, as with any type of secured loan you also run the risk of losing your car or vehicle if you were unable to repay back what you owe to the lender. Therefore any person wishing to take out a logbook loan should do so with caution.
Secured loans or as they are often referred to as Homeowner loans are a type of loan, which like a mortgage is secured against property. Secured loans can be given against both standard residential mortgages and buy to let property aswell. Research has shown that these type of loans are generally for larger amounts of borrowing. For example the lending limit on a standard personal loan may be in the region of £20,000 – £25,000. However, with a loan secured against your property there is no limit with some lenders offering large loans upto £1 Million and beyond.
Who takes out secured loans?
Secured loans are popular for people who wish to carry out home improvements or who need to borrow larger amounts. Secured loans are often used by applicants who may have a bad or adverse credit history and need a loan. As these types of loans require security, most lenders are willing to offer them to applicants who wouldnt qualify for a standard, unsecured personal loan. This is partly due to the fact the lender is taking on less risk as they have the added security of our assets. The downside to the borrower is that if they struggled to pay back the loan, in the same case a mortgage the property could be repossessed to pay back what was owing to the lender. Loans can be arranged from a few thousand pounds and upwards of millions.
Secured loans require the help of a broker. This means you can not apply direct to the lender like you could a mainstream personal loan. Brokers charge a fee of around 10% of the loan value for searching the market and arranging the loan. You’ll also need to pay costs for valulation and search fees too.
It goes without saying that mortgages are the most popular form of secured loan in the UK. Most people dispite the rising costs of homes in the UK still have dreams of one day owning their own home which will mean having to take out a mortgage for the first time. Mortgages can be take out individually or as is most common with a partner, boyfriend or girlfriend. The mortgage market in recent years has change since the credit crunch back in the mid 2000’s. However as of today from our research there are some 6000 mortgages to choose from as displayed by mortgage comparison website lendingexpert.co.uk
There has been some recent changes in how mortgage applications are accessed by lenders, including an affordability test that enables the lender, bank or building society to assess if the borrower can adequately afford the mortgage given the assessment of other expenses and loans etc.
What types of mortgages are available?
Speaking with David Allan from Lending Expert I learnt that the most popular type of mortgage is the 2 year fixed and 3 year fixed rate mortgages that appeal to most borrowers who are taking out a mortgage for the very first time. Second to this are the discounted mortgages that allow the borrower to take out a mortgage at a lower rate of interest that lasts initially for upto 2 years. The benefits of this are clear given the upfront expenses and costs associated with buying a home, including solicitors fees, moving costs, and cost for furniture and carpets etc.
Fixed rate mortgages
Fixed rate mortgages are very common and available from most of the lenders in the marketplace today. A fixed rate deal means that the interest payable will remain fixed for a period of time. Mostly either 2,3,5 and upto 10 years are available.
Discounted rate mortgages
A discounted mortgage is a type of mortgage product that has a reduced or lower rate of interest to pay initially. These types of mortgages allow some cost savings to be made initially and are good for first time buyers who are looking to lower payments at the start of their mortgage term.
Variable rate mortgages
These types of mortgage are variable in that they move with the Bank of England Base Rate, this means that if the BOE rate should go down, then so will the rate payable on your mortgage. Likewise if the rate was to go up then so would your mortgage rate. Unlike a fixed rate mortgage these types of mortgages can increase and decrease in cost depending on the BOE rate applied at the time.
Buy to let mortgages
Buy to let mortgages have become very popular over the past 10 years or more. This was due to the housing boom we experienced between 2000 and 2005 when on average house prices rose between 10 and 20% per annum. These types of mortgages are used for those who wish to buy a house and then rent it out. The buy to let boom has seen buying homes for investment very popular in recent times. BTL mortgages are generally a few percentage points more expensive than your standard residential mortgage, this is partly due to the fact they carry greater risk for the lender.