What is a secured loan broker – and should I use one?
We receive lots of questions about secured loan brokers, so we thought it best to address this topic in a concise guide. Read on to fully understand what a secured loan broker is in the UK.
Secured loans – quick recap!
Secured loans are loans that ask you to use one of your assets as security in the credit agreement. If you can no longer afford the loan, the lender can repossess the asset you listed as security on the loan and then sell it to recover the money owed plus any additional charges.
You should think carefully before securing a debt with an asset, especially a family home. If you cannot keep up repayments on debts against your home, the home may be repossessed in the same process if you do not keep up repayments on a mortgage.
How does a secured loan work?
Secured loans come in different forms. Some are secured with cars, while others are secured by a home or the equity in your property. And some secured loans have to be used for specific reasons, such as debt consolidation or home improvements.
Yet, most of them provide you with a lump sum amount that must be repaid in the conventional way of monthly repayments over a fixed term. You can usually pay the loan off early but will likely have to pay early repayment charges in the process.
If you stop making repayments and cannot successfully negotiate a new payment plan, the lender will be allowed to take your listed asset and sell it to get its money back. This means securing debts against your home could result in losing your home if you stop repaying.
Why would you choose a secured loan over an unsecured loan?
Arguably the biggest reason why people choose a secured loan over an unsecured loan is that a secured loan can provide a much larger loan amount. Whereas many unsecured loans are capped between £15,000 and £25,000, a secured loan can provide credit up to and beyond £100,000, depending on the type of secured loan taken out.
Another possible reason to choose a secured loan over an unsecured loan is that the former might be able to get you a lower interest rate. However, this is not guaranteed and will depend on personal circumstances, including your credit history and current credit score.
Can a broker get you a secured loan?
A credit broker might be able to get you a secured loan. Many people use a secured loan broker to outsource the task of finding the right secured loan for their needs, and often in the hope that the secured loan broker will secure them a better loan deal.
What is a secured loan broker?
A secured loan broker is a company or individual that will discuss your credit needs and ensure that a secured loan is right for you. If they believe you can benefit from a secured loan, they will search the market on your behalf to find the best options.
If you want to apply for one of the options found, the secured loan broker can help you fill in the application. They charge a fee for this service and may receive a commission from the loan company.
Some credit brokers work differently from what is described above and do not have a personalised discussion at the start of the process. They work entirely online and farm out your application to potential lenders.
Do secured loan brokers charge?
A secured loan broker provides a commercial service and the aim is to make a profit. They charge for the service provided but the structure of fees can differ between different credit brokers.
They may charge to search for your loan, or they may only charge if you agree to one of the loans they find. Alternatively, they may not charge you at all and will take a commission from loan payments from the actual loan provider. This means some of your loan payments will go to the broker and therefore increase the overall cost of your loan.
If they only take a commission from the loan provider, it means the broker does not search the whole of the market, but rather, only loan providers they are partnered with. This could prevent you from getting a better loan deal elsewhere.
Is it easier to get a secured loan through a broker?
It is easier to get a secured loan through a broker in the sense that the research is outsourced to a capable professional. But the secured loan broker will not guarantee you will be approved for the loan. These people and companies do not have influence over loan provider affordability tests. If you have bad credit, you should expect to pay a higher interest rate if approved.
Should I consider secured loan brokers?
A secured loan broker does not guarantee you’ll get a better loan deal, so if you feel confident about searching for a secured loan independently using loan calculators and comparison sites, you may not need their help. However, if you have bad credit or don’t feel confident searching for secured loans on your own, using a credit broker may be worth the money.
If you do decide to use a secured loan broker, only use one that is authorised and regulated by the Financial Conduct Authority.
How quickly can I get a secured loan?
Secured loans take longer to be approved than unsecured loans in most situations. The lender may need to calculate the value of your property to know how much they can lend. The process of doing this can take time. On average most secured loan applications take between 3-6 weeks to hear back on. Once approved, you should receive the funds within a couple of days.
What banks offer secured loans in the UK?
Most UK banks offer a wide range of secured loans, not limited to secured personal loans, loans secured against the equity in your home (second charge mortgage), debt consolidation loans, home improvement loans, homeowner loans, car loans and much more.
Where is the best place to get a secured loan?
There is no single best place to get a secured loan. Banks, mortgage providers and online loan creditors can all offer competitive secured loans rates. The best place to get a secured loan depends on personal circumstances.
How to spot legal secured loan lenders
Legal secured loan lenders are authorised and regulated by the Financial Conduct Authority. You should see this information and related information displayed at the bottom of the lender’s homepage, if not every website page. You can always ask a debt charity to help you work out if a lender is legitimate and not a scam.
Are secured loans bad?
Some people think secured loans are bad because you are putting your assets at risk if your finances change for the worse.
It’s certainly true that your home may be repossessed and you should think carefully before securing a debt with any valuable asset, but you can mitigate risks by borrowing less, possibly saving for a period before taking out the loan so you don’t need as much credit.
Moreover, most people take out a secured loan and have no issues, benefiting from greater amounts of credit at a competitive interest rate.
Can I take out a secured loan?
You will be eligible to apply for a secured loan if you have the asset required to secure the loan in question and meet the lender’s other criteria, such as being of a certain age etc.
Your loan application will be decided based on the affordability of the loan, which uses your regular income and ongoing debts to calculate how much of your monthly income would be needed to pay off all your debts. If this amount exceeds a certain proportion of your income (accounting for other essential expenses) then the loan would be deemed unaffordable and you’ll be denied the credit.
On top of this, the lender will assess your credit rating. If you have poor credit you can also be denied the loan.
Before you search for a secured loan broker…
Before you start looking for a reputable secured loan broker, why not learn more about secured loans on MoneyNerd first?
By reading our guides, you can get free information and could avoid paying for broker consultations. We’ve answered the most asked secured loan questions already on our blog!