By Chris James

What Is A Secured Loan?

A secured loan is essentially a loan that is taken out against your home or other collateral. In the context of this guide, when talking about secured loans and secured lending, reference is being made to that of a lender placing a legal charge over a property.

The most common type of secured loan is that of a mortgage. It is not within the financial capability of most people to purchase a property outright so most of us will therefore need to secure a mortgage.

Again, in the context of this guide, when talking about secured loans and secured lending, reference is being made to secondary secured loans, or 'second charges' as they are commonly known within the industry. Borrowers who apply for a secured loan/second charge are doing so to follow that of their first mortgage.

How Do Secured Loans Work?

To the average lender, secured loans offer a very appealing prospect. They are able to lend out large sums of money with the additional security of a property - They will subsequently have open to them a number of legal remedies in the event of the borrower defaulting there obligations and payments - This will of course include home repossession.

A lender will register a secured loan by way of a legal charge with which the applicant must give consent to in order for an application to complete. The charge is then registered at the Land Registry by the lenders solicitors.

When it comes to remortgaging, most secured lenders will require the outstanding balance to be redeemed at the same time as the first mortgage. An exception to this is when a second charge lender grants a 'deed of postponement', thus allowing the existing second charge loan to run alongside that of the new mortgage lender.

What Are The Characteristics Of A Secured Loan?

The characteristics of a secured loan share many similarities to that of a mortgage. The most common one being that if your do not keep up the repayments on the secured loan, your home may be repossessed.

In the case of taking out a secured loan, it is a common myth that your home will be safe so long as you meet the repayments on your first mortgage. This is not true. If you fail to meet the repayments on your secured loan, even if you are up to date on your mortgage, the lender can seek possession of your property through the courts.

Secured loans can be arranged on loan sizes that usually range from £5,000 to £100,000, depending on the lender. Flexible terms are also available on secured lending, ranging from 5 up to 30 years. Some lenders will have schemes available allowing you to borrow more than the value of your property (combined with that of your first mortgage) of up to 125%. These schemes are not too common and it is believed that this is more of a marketing ploy rather than a viable or an advisable option to many borrowers.

How Does A Debt Consolidation Secured Loan Work?

Debt consolidation loans enables borrowers with significant levels of debt to consolidate some or all of these outstanding commitments into one loan amount and subsequently, one monthly payment. Debt consolidation is seen by many as an extremely effective short term solution to relieving the pressures of debt.

It is highly likely that by arranging a secured loan to clear off other unsecured debts such as credit cards, personal loans and hire purchases, the borrower is able to achieve a lower rate of interest than that applied to their unsecured commitments.

Not only will this take the effect of reducing the monthly payments but also secured loans can be arranged over a longer term than that of their unsecured counterparts. By extending the term of the loan will also mean that lower monthly payments can be achieved.

This is often viewed as a short term solution as in the long term, increasing the term of the debts may mean that you end up paying more interest. The other potential disadvantage of these types of loans is that consolidated debts that were once unsecured would then transform to being secured on the property.

What Are The Benefits Of A Secured Loan?

There are many benefits to be realised in taking out a secured loan. Many lenders and brokers alike will not charge any upfront fees, house valuation costs or legal fees. Compared to the fees associated with a remortgage, the secured loan option can be a very appealing one to borrowers.

Such fees associated with a remortgage will include valuation and administration fees, higher lending charges, discharge fees, title insurance and telegraphic transfer fees - This list is by no means exhaustive however they may not all be applicable in every case.

The timescales involved along with the various fees involved can be a put off for some homeowners considering a remortgage.

Perhaps the biggest appeal to most homeowners who are seeking finance is the speed at which a secured loan application can complete. At the top end of the scale, an application can take just a matter of days to complete. However for the majority, two to three weeks is a sensible timeframe to look for.

The benefits of secured loans when looked at against comparable unsecured loans are that it is highly likely that you will obtain a more favourable rate of interest on secured lending. As discussed earlier, this is due to the fact that the lender will in this case secure the loan by legal charge over the property - reducing their perceived level of risk and subsequently reducing the rate of interest.

A secured loan will also offer a more flexible repayment period than that of an unsecured loan - between 5 and 30 years with many lenders. If it is the intention of the borrower to obtain the very lowest monthly payment then this could be large benefit to them.

How Do I Know Whether I Should Take Out A Remortgage Or Secured Loan?

Each case must be assessed on its own merits. It is impossible to answer this question without careful consideration and assessment of the borrowers circumstances, needs and objectives.

The obvious example would be where a borrower seeking finance has a large early repayment charge to redeem their mortgage. In this case it may not be appropriate to remortgage. ERCs (Early repayment charges) can be as high as 7% of the outstanding mortgage balance which can of course result in thousands of pounds.

By arranging a secured loan in this instance might mean that you would be paying a slightly higher rate than that of the mortgage, however it could potentially save thousands of pounds of charges.

Another example of when taking out a secured loan might be of more benefit to the borrower would be a case where the first mortgage was originally taken out before the individual started to miss payments or run up another form of bad credit. It is highly likely in this instance that raising finance through a remortgage would mean paying a higher non-conforming/sub prime rate on the entire amount of borrowing.

By arranging a secured loan might mean that the borrower can still enjoy the prime high street rate applied to the first mortgage whilst only paying a higher non-conforming/sub prime rate on the new secured loan - the additional finance.

Can I Apply For A Secured Loan With A Bad Credit History?

There are many schemes available today to cater for nearly every type of borrower - regardless of credit history. If there is available equity in your property and you can meet the affordability criteria then it is highly like that you will be eligible for a secured loan. Bad credit will usually be defined between having one or more of the following:

# Mortgage arrears

# Rental arrears

# Secured loan arrears

# County Court Judgements

# Individual voluntary arrangements

# Bankruptcy

The more severe your credit history then the higher the interest rate that you will be charged. This again is a reflection of the higher level of risk perceived by the lender.

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Running a business and becoming successful in that venture requires a lot finance and financial assistance. In UK finance for business can be got from different sources. Business related financial services are provided by many organizations in that field. UK finance for leasing a company or organization, UK finance for debt collection, UK finance for Venture Capital can also be arranged.

There are companies that help a business in hire purchasing and arranging for leasing. You can approach such dedicated companies for such services. UK Finance for hardware funding for the information technology business is also available in companies. Leasing services for small businesses, agricultural and industrial funding operations are available in companies dedicated to that service. A company called Richard Mares Asset Finance in UK finances for agricultural and industrial setups. If you need information on UK finance for equipment leasing, mortgages and commercial finance then you can approach companies like 1st Leasing Company and 1pm.co.uk. 

Many options for UK finance are available with them. Just check out their website for more details on the different types of finance available with them. For UK finance from £5,000 upwards you can approach companies like 1pm. They work closely with their clients to provide what they need.

UK Finance for companies in the information technology sector can get their financing options from companies like Corporate Computer Lease Plc in UK. Such companies make IT more affordable and you get the UK finance for almost any technology spends. They have successful records of financing in UK for even Fortune 500 companies. This is one of the fastest growing UK finance companies.

Companies like Corporate Business Finance fund you for Plant, Machinery and for other corporate financial services. They provide finance in UK for many services like hire purchase, leasing, operating leases, factoring, release of capital, and commercial mortgages. Each and every business may need a unique funding requirement and it is a tedious task to arrange for funding when you need to run your business. A lot of time is wasted in searching for proper funding. Under such circumstances you can approach companies like these for UK finance for your funding requirements.

For new start ups it is difficult to get finance in UK or elsewhere. Most of the finance companies will fund only the established businesses. But companies like Oak Leasing help even the start ups since they understand the difficulties that the startups face. The problems that the start ups face are only initially. If they have a proper business plan they could come up. The team at Oak leasing would finance your startups and for any new equipments that you need. More details are available in their website.

There are companies that fund only the big companies. Finance for big companies is given by UK finance companies like the Benington Securities. It is a private enterprise brokerage. They cover only the corporate investments. There are many companies that provide UK finance for even individuals. Companies like Troman finance provide funds for the individuals and small business firms.

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Many business opportunities come with an associated challenge. For most entrepreneurial businesses, the greatest challenge is financing the business opportunities created by your sales efforts. What are your options if you have a sales opportunity that is clearly too large for your normal scale of operations? Will your bank provide the necessary financing? Is your business a startup, or too new to meet the bank's requirements? Can you tap into a commercial real estate loan or a home equity loan in sufficient time to conclude the transaction? Do you decline the order? Fortunately there is an alternative way to meet this challenge: You can use Purchase Order Financing & Letter of Credit financing to deliver the product and close the sale.

What is purchase order financing?

Purchase order financing is a specialized method of providing structured working capital and loans that are secured by accounts receivables, inventory, machinery, equipment and/or real estate. This type of funding is excellent for startup companies, refinancing existing loans, financing growth, mergers and acquisitions, management buy-outs and management buy-ins.

Purchase order financing is based upon bona fide purchase orders from reputable, creditworthy companies, or government entities. Verification of the validity of the purchase orders is required. The financing is not based on your company's financial strength. It is based on the creditworthiness of your customers, the strength of the commercial finance company funding the transaction, and in most cases a letter of credit.

What is a letter of credit?

A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. If the buyer is unable to make payment for the purchase, the bank is required to cover the full amount of the purchase. In a purchase order financing transaction, the bank relies on the creditworthiness of the commercial finance company in order to issue the letter of credit. The letter of credit "backs up" the purchase order financing to the supplier, or manufacturer.

Is purchase order financing appropriate for your sales program?

The perfect paradigm is a distributor buying products from a supplier and shipping directly to the purchaser. Importers of finished goods, exporters of finished goods, out-source manufacturers, wholesalers and distributors can effectively use purchase order financing to grow their businesses.

Is purchase order financing appropriate for growing your sales orders?

Purchase order financing requires you to have management expertise- a proven track record in your particular business. You must have bona fine purchase orders from reputable firms that can be verified. And you must have a repayment plan; often this is from a commercial finance company in the form of accounts receivable or asset-based financing.

You should have a gross margin of at least 25% to benefit from purchase order financing. Sellers of services or commodities with low margins, such as lumber or grain, will not qualify.

The bottom line decision for purchase order financing:

It can take two or more years to develop a profitable business. Banks generally base their lending limits on a business' performance for the past two or three years. Purchase order financing, combined with letters of credit and/or accounts receivable or asset-based financing can give you sufficient funds to cover your operating costs, financing costs and still realize significant profits. If you qualify for purchase order financing, you can grow your business by taking advantage of large purchase orders and eventually qualify for bank financing.

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One of the most misunderstood concepts about leasing or buying a new car with a loan is how the financing really works. We'll say it again later, but the key concept to understand is that dealers do not finance car leases and loans. Repeat: New-car dealers do not finance cars. However, dealers can affect what you pay for financing.

Dealer always sell for cash

Car dealers are independent business people who have an authorized franchise with one or more car manufacturers. They do not work for the manufacturer. There are no manufacturer-owned car dealerships. In some cases, a large dealership may own multiple dealership stores in various locations. These stores may sell the same brand vehicles, or different brands. Dealers buy cars from the manufacturer, usually with large loans from a bank or finance company. The bank charges dealers interest on these loans. Dealers have to sell cars to pay off these loans and associated interest, as well as cover other expenses of running a business.

Dealers always get cash for their cars, whether it's directly from the customer, or from a finance company or bank who has loaned a customer the money. A common misconception is that dealers give cash customers a discount. This is not true because dealers generally make more money on financed loans or leases -- in the form of commissions or boosted interest rates.

Dealers don't finance leases and loans

When a dealer leases or sells a car to a customer, he has finance companies or banks that he works with to provide his customers the financing they need. Most dealers use the car manufacturer's "captive" finance company, such as GMAC, Ford Motor Credit, and American Honda Finance. Dealers arrrange financing on customers' behalf -- as a service. Customers can arrange their own financing if they choose.

Key point: Dealers do not finance leases and loans. Dealers do not approve customers for leases or loans. Dealers do not process leases or loans or take payments on leases or loans. Dealers simply take lease and loan applications and try to arrange financing for customers.

Dealers use independent finance companies or banks on customers' behalf

A dealer may do a cursory preliminary check of a customer's credit history using one of the three major credit reporting agencies. This NOT for loan or lease approval, but only to determine if the customer has such serious credit problems that it would not make sense to continue with the transaction.

Remember, the dealer is NOT the finance company -- he cannot approve customers for loans or leases. The finance company or bank to which the dealer sends the lease or loan application will do their own check and look at not only credit history and payment history, but credit score, and debt-to-income ratio. This credit worthiness check is much more thorough than the simple check that the dealer may have done.

What you'll pay - your credit score

When a finance company or bank checks your credit score, you'll be classified in one of three categories. First, you could be rated a "prime" customer, or "A" tier. This means your FICO score is higher than 680. You qualify for the best interest rate.

If your credit score is between 620 and 680, you are "near-prime" and will pay as much as 5% higher interest rate than someone with a better score.

If your score is below 620, you are considered "sub-prime" and will almost certainly have difficulty finding a bank or finance company who is willing to give you a loan or lease. If you find one, your interest rate will likely be extremely high.

Dealers can change your interest rate

One of the potential "hidden" fees when buying or leasing a car is a markup that dealers can add to your interest rate, even when you have a good credit score.. Say the normal interest rate from the finance company used by the dealer is 6.0%. The dealer marks up the rate by a percentage, say 2.0%, making your real rate 8.0%. This markup is never mentioned anywhere in the documents you sign. Car dealers claim the practice is justified to cover the cost of their brokering customers' financing. In fact, it's additional profit or simply making up for concessions made to the customer somewhere else in the deal.

Automotive News reports that a number of companies such as DaimlerChrysler Services, Honda Finance, and GMAC have settled on a 2.5% markup limit agreement. California now has a law that sets a 2.5% markup ceiling for most car loans. So it seems that 2.5% is now the magic number in the industry.

A common question from automotive consumers is, "Can I negotiate my interest rate?" In most cases you can try to negotiate the markup, but not the base rate, which is set by the finance company based on your FICO score. In the past, there was no good way to know how much the car dealership was marking up the rate but, now, with the recent "agreements" and laws, we can assume the markup rate is going to be as much as 2.5% added to the base rate. Lease rates are particularly difficult to negotiate because the interest rate is expressed as "money factor" (see the discussion of lease finance fees in our Monthly Lease Payments article), and the rate doesn't appear in your lease contract.

Dealers may check your credit, but it matters little

Many customers mistakenly assume that when the dealer says he has done a credit check and lets the customer sign papers, that the deal is done and everything is legally wrapped up. Not true. Customers often believe that they can somehow keep a car that they haven't paid for just because they have signed papers or that there is some minor technical mistake in their contract. This is also a misconception.

What you sign and what it means

When a customer leases or buys a car with a loan, he or she signs papers that essentially say the following: " I agree to lease or buy this car, using funds that might be loaned to me by a finance company or bank (if they approve me) that the dealer will attempt to arrange for me and, if those funds are not approved by a finance company or bank, the deal is void unless the dealer can find another finance company that will approve me. If the funds are approved, the finance company or bank will pay the dealer directly with those funds that have been loaned to me. The finance company or bank will then work directly with me to arrange monthly payments to repay that loan or lease. I understand that the dealer will have then been paid in full for his car and will no longer be involved in the lease or loan."

If your lease or loan is not approved

The finance company or bank can find problems in the customer's credit history/score or debt-to-income data that makes them flag the application as high risk. They can then ask the dealer to inform the customer that the application was not approved, or that additional money is required, or that a co-signer is needed in order to re-submit the application for approval. Finance companies and banks work through the dealer; they do not work with the customer directly until the payment book arrives after approval.

With leases, a finance company will sometimes ask for a down payment when there was none initially, or may ask for a larger security deposit, possibly when there was none initially. Often, this will allow the payment to remain the same even though the overall cost of the deal has gone up.

If the finance company or bank does not approve the customer's lease or loan, they don't pay the dealer for the car, and the car still belongs to the dealer, even though he may have already allowed the customer to drive the car home a couple of weeks ago. If the dealer doesn't get paid, he will want his car back, regardless of any contracts the customer may have signed.

What choices do you have?

First, the customer should always know their own credit history and FICO score before ever setting foot in a dealer's showroom. This way, there won't be any surprises later. Second, the customer can ask the dealer if he works with other banks or finance companies who might be willing to approve the loan or lease. Third, the customer can always shop for their own lease or loan financing and get pre-approval for a spending limit.

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The current US economy is full of challenges for the everyday working family. There are pay cuts, rising consumer prices and a depressed housing market that has taken personal savings to the lowest levels in years. People who purchased homes in the height of the housing market are now stuck with inflated payments, especially if their mortgages contained adjustable rates. All these dynamics are creating pressure on their finances and calling for a change. So how do you bring your head back above water? After your mortgage payment, a car payment is the next largest consumer expense. Here are a few tips that will help you lower that payment in negotiations with your car loan financing company:

? Ask them for an extension to your loan to reduce your payments. This is a known reality in the vehicle financing arena and one concession that auto finance companies are doing on a daily basis. If you are the type of customer that has consistently, with a few exceptions, made your payments on time, there is no reason why they would not approve this type of extension. An extension will increase the number of payments that need to be made but also lower the payment amount. In today's market, it's not easy to source reliable customers who make their payments on time, so you are more valuable to them than you think. They know your payment history and benefit from the extension as they collect more money from you in interest payments if you have a longer term.

? Request a payment break. What this means is that you request a short period - 2 or 3 months - where you receive approval from them to not have to make any payments and have those payments you missed added to the ended of the contract. This way you have the opportunity to get through a tough period and they have the opportunity to earn more money because the outstanding balance is higher than what was on the original loan schedule. You will want to ensure that they don't add excessive fees or costs for this extension that mitigate the benefit.

? If you are a very good customer, ask your finance company to lower your rate in light of your excellent payment history. Again, this comes back to the fact that a lower margin good customer is better than no customer at all. The costs of losing you far outweigh the costs of cutting a valuable customer an interest break.

Use the current economic environment to your advantage. There are many  car loan companies in the market that are interested in keeping good accounts rather than losing them to expensive collection procedures or competitors. These times bring challenges but not without opportunities too.

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