If you have made the decision to apply for a secured loan, it is important to approach the application process strategically. Doing so could save you time, money and hassle long-term – particularly if looking to raise extensive funds for a major project.
Whether you are considering an application for a second mortgage, a business loan or a specialist secured loan, the following checklist will help ensure a smooth and seamless process from start to finish:
Examine YourCredit Report
Before applying for any financial product or service, it is essential to first examine your credit report. This means checking your current credit score with the three primary Credit Reference Agencies (CRAs) in the UK; Equifax, Experian and TransUnion (formerly called Callcredit). In doing so, you will gain insights into the strength of your credit report, any potential inaccuracies in your credit history and the extent to which you are likely to qualify for a loan.
It is worth noting that with many types of specialist secured loans, security (or collateral) is more important than a flawless credit history. Even if you have a poor credit score, you may still qualify for a secured loan with a specialist lender.
Calculate the Equity YouHave Tied Up in Your Home
If you are currently repaying a mortgage on your home or business property, you technically only own a portion of it. This is referred to as ‘equity’.
Working out how much you will be able to borrow against your property means doing the following basic maths:
- Take the current value of your property, which will usually mean arranging an independent valuation.
- Contact your lender (or consult your mortgage documentation) to find out exactly how much you still owe on your mortgage.
- Subtract your remaining mortgage balance from the market value of your property to determine how much equity you have in your home.
For example, if your home has a value of £200,000 and you still have a mortgage balance of £125,000 left to pay. This would mean you have equity totaling £75,000 available in your property. This does not necessarily mean you will qualify for a loan of £75,000, as most lenders are not willing to lend on 100% of your equity.
Compare the Market for a Great Deal
Secured loan comparison sites don’t always paint an accurate picture of the options available. To ensure you get the best possible deal on your secured loan, it is advisable to consult with an independent broker at the earliest possible stage.
Some of the best deals on specialist secured loans are not available on the UK High Street andindependent lenders and smaller banks may be accessible exclusively via an established and reputable broker.
Consider Your Long-Term Budget
Calculating affordability means taking into account all your current and potential future outgoings. It is vital to calculate whether you will be able to meet repayment obligations on a long time basis.
Decide How Much You Need to Borrow
Likewise, secured loan specialists are often unwilling to issue loans for more than the applicant needs. If you ask for more than you realistically need, you are more likely to be declined.
As secured loans are issued against collateral (i.e. your home), it is never a good idea to apply for more than you need to borrow.
Consider Early Repayment Options
Some lenders actively encourage early repayment, incentivising borrowers with exceptionally low borrowing costs for repaying their debts as quickly as possible. By contrast, others impose significant fees and penalties on those who repay their debts early.
This is something to consider before applying, as there is always the chance you will decide to repay your secured loan (in full or in part) at a date earlier than initially agreed. The availability or otherwise of the early repayment option is best discussed with an independent broker, who will advise you as to the flexibility of the secured loan before applying.
Supporting Documentation and Evidence
You will be required to provide various documents and forms of financial evidence to support your application. Examples of which could include proof of income, information on your current mortgage outgoings and the documents formalising the market value of your property.
Requirements differ from one lender to the next, but all applications must be submitted with sufficient documentation. This is also something to discuss with your broker before applying, as failure to provide the required evidence to support your application will result in its immediate refusal.