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Secured Loans Archives - FinanceNet.org https://www.financenet.org/tag/secured-loans/ Wed, 04 Mar 2020 18:12:57 +0000 en-US hourly 1 https://wordpress.org/?v=6.4.4 Protecting Yourself When Using Securities to Raise Finance https://www.financenet.org/protecting-yourself-when-using-securities-to-raise-finance/ Fri, 17 May 2013 13:09:24 +0000 http://www.financenet.org/?p=1098 If your own assets such as a house or car, you may be tempted to make the most of them by releasing some of their value in the form of a secured loan.

Offering such securities as collateral can make it easier to raise finance, whether you do this by taking out a loan secured against your car or by obtaining a further advance to your mortgage. However, whilst, this approach can help you access larger sums of money than might otherwise be possible, it is a risk. If for any reason you are no longer able to make repayments, you could be left without key possessions. You could even lose your family home (or, in the case of a defaulted bridging loan, you might actually lose two houses.)

So, what can you do to mitigate this risk? Here we look at the couple of options open to you:

Payment Protection Insurance (PPI)

This form of insurance is designed to cover you if your earning power is compromised and, as a result, your debts become problematic. Policies can be obtained from lenders and insurers and will usually include certain caveats that need to be born in mind. For example, the self employed are normally excluded and there are limits on the circumstances that will be covered if you need to stop working and neither back pain or stress fall within the scope of your standard PPI plan.

You will need to be in full-time permanent employment on taking out your insurance and you will not be eligible to claim for any conditions that pre-date your cover.

(You should be aware that PPI is always optional. In the past these products have been mis-sold, with consumers being left under the impression that they had no choice but to take out PPI alongside their line of credit, even if it was of no use to them. If this has happened to you, you can reclaim the cost of from the PPI provider).

Income Protection Insurance (IPI)

Not to be confused with PPI, income protection insurance has some important differences. Much like PPI it will payout if you are unable to work due to illness, disability or as the result of an accident (redundancy cover can also be added as an additional extra). However, unlike PPI, you’re able to set exactly when your policy would kick in after you’ve stopped working. The longer the span of time you set, the lower the premium you’ll get.

So, if for instance your employer will pay for 6 months worth of sick leave as part of your terms of employment, you can tailor your cover to reflect this and save money in the process.

Policies remain in place until the end of the term, which you might typically set as your retirement age. If you claim and then go back to work you still have your cover in place.

As you’d expect premiums are normally related to how much of a risk you present to the underwriter in terms of your health, lifestyle, gender and age. If these factors make a policy unaffordable there are budget options with capped payouts, as well as ‘age related’ policies where your occupation and other risk factors are not considered.

Mortgage Payment Protection Insurance (MPPI)

As the name suggests, this form of insurance is intended solely for the purpose of covering your mortgage repayments should you be unable to work. As with the above products, payments only start after a set period of you leaving employment (usually between 30-60 days) however, many providers will back date payments to the start of this period once it has elapsed.

Unlike the options listed above, MPPI will cover unemployment as standard, but you will not be able to claim on it for as much as the first six months of the plan, meaning you will need an alternate provision (such as savings or a redundancy package) during this time.

There will be a cap on how much you can receive monthly, so this may not be appropriate if your mortgage is especially large.

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Loans for People on Benefits https://www.financenet.org/loans-for-people-on-benefits/ Tue, 12 Apr 2011 14:31:20 +0000 http://www.financenet.org/?p=206

Living on benefits is never easy. Planning your life around the schedule of your benefit payments is inconvenient at the best of the times. Often it’s completely impossible.

It’s a fact of life that, inevitably, we all meet with unexpected expenses from time to time. If this happens in-between your benefit payments things can get a little too close for comfort.

One of the most effective ways to fashion yourself some breathing room is by taking out a short term loan. However, there are a number of things to consider first.

Interest Rates

You will find it practically impossible, especially in today’s financial climate, to get a loan from a major bank. If you are considering getting a loan whilst on benefits then, unfortunately, you will have forget about the interest rates you have seen advertised on the high street.

The lenders you are more likely to secure a loan from operate in what is known as the “sub-prime” market. Whilst you may be used to hearing of interest rates between around 10%-20%, the typical APR on a loan form a sub-prime lender will be somewhere from 500%-4,000%. Some are in the tens of thousands.

For this reason it is best to borrow on small amounts for very small periods of time, otherwise the amount owed will rise rapidly and you may risk defaulting your repayments. This will impact on your credit rating.

Loan Amounts and Guarantors

If you are unemployed the absolute largest amount you are likely to secure a loan for is £3,000, however, only very few lenders offer this much to people who are on social security. Their interest rates are very high and their collection policies are inflexible, meaning if you are unable to keep up with repayments, which realistically, considering the APR, is likely, you’ll be facing all sorts of trouble. Event then, these lenders will only lend an amount such as £3,000 if you have a guarantor.

A guarantor is somebody who is willing to make your repayments for you should you fail to do so. It can be anybody but it is normally a close friend or family member. Being a guarantor is a big commitment as they are making themselves legally liable to pay off the loan if you can’t and as such guarantor loans need to be thought about carefully.

Furthermore, they will need to have a job with a decent income and a good credit history, as they will be credit checked by the lender. This means they can’t have received a CCJ or defaulted a payment in the last six years, or be on an IVA or be bankrupt.

If you are lucky enough to have someone willing to stand as a guarantor for you, it’s worth figuring out between you if it would not be wiser for the guarantor to get a loan in their name and then lend to you as a friend. This is also a big commitment but may ultimately be cheaper and there are typically more lenders for people with good credit then there are guarantor loan lenders.

For one thing, with their good credit history and income, they should be able to go to a high street lender and get a loan with a considerably lower APR. Secondly, high street lenders can be easier to negotiate with if you run into any troubles and so will your friend/relative.

If you don’t have a guarantor, which most people don’t, you’ll find it hard to get more than £1,000.

Credit Checks and Credit History

Your credit history is also going to be a factor. If you receive a County Court Judgement (a court order to pay an outstanding bill or debt) or receive a default notice (a letter from a company which comes after a final warning to tell you that you’ve defaulted, or failed, to pay outstanding monies) both of these will stay on your credit history for up to six years, limiting the amount you can borrow and the types of lender you can approach.

There are a number of websites that you can go to in order to find out exactly what your credit score is and what is on your credit history. You normally have to pay for this service, however, it is worth doing. Many people who have received default notices don’t know about it, often losing the actual notice itself amongst other bills and documents.

Some short term lenders may not credit check you at all, but be honest with yourself. Will you actually make repayments on time? If not, don’t get the loan. These same short term loans are generally loaded with lots of extra fees and charges for failed and late payments. This is on top of the interest so be sure you can pay on time.

Secured Loans

A secured loan is where you, the borrower, have to provide collateral to the lender as a kind of deposit for the loan. One particularly common form of secured loan offered to people on benefits or with poor credit are loans secured against cars. This is good news if you have a car or some other form of capital, as it opens up the option of secured loans to you.

However, if you fail to keep up repayments you will lose your car. Losing capital is the last thing you need when you’re already in a tight spot, therefore you have to asses the risk you are taking very carefully.

In other instances you may be asked by a lender to pawn some of your possessions in order to get access to a loan. This is similar but less risky as you know where you stand and, generally, the possessions will be worth less than a car. Again the interest rates are very high, so there’s no point sacrificing your possessions if you can’t afford the repayments anyway. You’d be better of selling them for cash. The amount raised would be smaller but at least you’d avoid accruing interest or harming your credit rating.

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