loan search for homeowners

A glance through the financial pages of any newspaper will tell you that credit has become a lot more difficult to come by. The exception to the general rule is in the availability of secured loans, which continue to offer borrowers opportunities for loans at relatively low rates. Why is this?  

It might be helpful to start with a dictionary definition that describes a secured loan as borrowing which is “backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. The assets may be forfeited to the lender if the borrower fails to make the necessary payments”.  

As the definition spells out, when a borrower offers assets as security for a loan it reduces the lender’s risk because he can repossess the collateral property if the borrower defaults on the repayments of the loan. Furthermore, in the very act of advancing his assets as security, the borrower is indicating a faith in his capacity to repay the loan. In other words, borrowers have a much greater incentive to maintain their loan repayments if their valuable assets are at risk. 

Thanks to the security that the lender has been offered, he is prepared to advance the loan at a much more favourable rate of interest than would be necessary for a higher-risk unsecured loan.  

It can be seen, therefore, that both borrower and lender benefit. More than this, however, different types of borrower can benefit from secured loan finance. Those with a healthy credit rating, using their home to secure a so-called homeowner loan will be able to release equity that has built up in the property to finance home improvements, for example, at particularly advantageous rates of interest. Alternatively, such secured loan finance can be used for the process of debt consolidation, where the loan is applied to buy down various other high-cost debts, such as credit cards or other unsecured loans.  

Finally, secured loan finance may prove to be the only realistic means of borrowing for those who have a poor credit rating, past county court judgments or even a history that involved bankruptcy at some stage. With a homeowner loan, such borrowers can not only raise a loan at reasonable rates and conditions, but, through the timely repayment of monthly instalments, also demonstrate that they are now financially responsible enough to repair their past credit history.  

In summary, secured loan finance is about reducing the risk inherent in advancing a loan to any borrower. In return for the reduced risk, the lender can afford to offer a much lower rate of interest. Therefore, secured loan finance: 

• Benefits both borrower and lender;
• In the form of a homeowner loan, can release equity in a property for borrowing at attractive rates for such things as home improvements; 
• Can provide the route to debt consolidation;
• Offers a means for even those with a poor credit rating to raise a loan at a reasonable rate of interest and, in so doing, help to repair an adverse credit history.

Robert Beaumont is the author of this secured loans article.

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their specific needs. If there is something in the article which you which to rely on then please check those details with the person with whom you arrange a financial product or service.

The views in this article represent those of the author and not those of Netbasic Limited.