Secured Loans

Secured loans are not the best way of funding a property purchase. This site definitely advises that the cheapest cost of borrowing is through a mortgage and for investment property financing, an interest only mortgage is preferred. However, for those of you that might over egg the pudding and take on more commitments than you should, then loans are a good option.

Both secured and unsecured loans are governed under the Consumer Credit Act 1974 (NOT the Financial Services Authority). This effectively means that there is no recourse for misselling through the FSA. Unsecured loans, because of the higher risk of default, will carry a higher interest rate compared to secured loans which will have lower rates as the risk of default is decreased as the borrower stands to lose the property if payments are not maintained.

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For both secured and unsecured loans, the greater the amount lent, the lower the rate of interest. This is generally because there are higher administration charges associated with smaller loans. With asset backed loans it's possible to borrow up to £100,000, whereas with unsecured the maximum is £25,000.

What's the best type of loan? The one that suits you the best! Always go for the amount that you need for the cheapest rate. Here are some things to watch for: online applications may be cheaper to offer as there are reduced administration costs; some lenders may offer repayment breaks or holidays from repayment; You will be credit scored - so if your credit

history is 'B-', then you may have to pay a higher rate; and lastly, a nasty trick suffered from personal experience is that if you take out insurance to protect yourself against accident, sickness and redundancy, then note that this insurance is generally not paid until you claim, and if you do claim the whole terms payments are added to your outstanding loan so that even when you come to pay this off early, you'll have to pay for the whole term's insurance and NOT on a pro rata basis.

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