What is a Secured Loan?

Employment status & Income:

Most prime secured loan lenders will want to see that the applicant is in stable employment, whether that is either employed or self employed. If you’re employed they will want to see that you are outside of any probationary period 1^st of all and therefore been with your current employer for 3-6 months minimum. In addition lenders will also require 3 years employment history on your application, although they do not require brokers to contact previous employers as part of the loan processing.

If you’re self employed some lenders will require you to have been trading for a minimum 12 months and may also require proof of your income, either by way of an accountants letter or 3 months recent bank statements. Lenders rarely require full accounts as their underwriters by and large do not have the expertise to assess accounts and a summary of income from an accountant is preferable to the lender. There remain a couple of lenders that will accept a pure self certification of income, without any proof of earnings whatsoever. They do however usually require some proof of self employment, either through a trade invoice or a letter from the Inland Revenue. Although a self certification is available, such lenders are aware of the type of expected incomes for a given profession however and will undertake certain checks to ensure that incomes are not inflated simply to meet with a lenders income criteria.

Credit History:

Your personal credit history is probably one of the most significant factors in determining whether a secured loan application would be accepted or not and if approved, the interest rate you would be charged.

Although a lender has collateral by charging the loan on the equity, they must also consider your ability and intent to repay a loan. By checking your employment and income they can assess your ability to pay and the results from your credit file will show them your previous intent.

If your credit file revealed some ‘bad credit, such as arrears, defaults or county court judgements, some prime secured loan lenders would not consider your enquiry at all.However there are some sub-prime lenders that will still consider it albeit at lower LTV levels and with a higher rate of interest charged on the loan to reflect the increased perceived risk to that lender.
 

Value of your property:

Another very important factor with secured loans is the value of the property being used as security for the loan as this determines the LTV (loan-to-value). Pre-credit crunch there were secured loan lenders offering LTV’s up to 125% of a property value. However once the credit crunch hit the UK and property values started to plummet, a large numbers of borrowers with these products found themselves in negative equity, where the value of the property was less that the mortgage and/or secured loan charged against it. Clearly this exposed such lenders to more obvious risk of losing money and subsequently most of these lenders withdrew from the market entirely.

The secured loan lenders that remain vary in their maximum LTV considerations, with prime lenders offering up to 90% LTV and sub prime lenders up to 75%.

To calculate an LTV (loan-to-value) you take the property value multiplied by the max LTV percentage and deduct the 1^st mortgage balance. The residual is the maximum amount available for a secured loan. For example value £150,000 x75% LTV = £112,500, less a 1^st mortgage balance of £75,000 would leave a maximum secured loan available of £37,500.

For further information on the secured loans available through More4 Loans, contact our friendly advisers on FREEPHONE 0800 0778956. You can also write to us at More4 Loans, The Elms, Doncaster Road, Rotherham South Yorkshire S65 1DY.