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Actions to take prior to taking out a Secured Loan by
Adrian Hudson
An Unsecured Loan
Although it probably won't provide as much capital as a secured loan
looking around for an unsecured loan prior to taking out a secured loan
might be advisable. In this day and age lenders are less concerned about
County Court Judgements and slightly adverse credit records, but one thing
to watch out for is the advertised APR. Lenders advertise using what is
called a 'typical APR', what this means is that at least two thirds of
their customers are on average charged this rate. There are two problems
here - one is that if you have a poor credit history they are likely to
charge you considerably more than the advertised rate and the second
problem is that you won't know what rate they will charge you until they
actually process your loan application. The problem here is that a 'dirty
great footprint' is left on your credit history file for every search
conducted on it.
There are another couple of things to watch out for when applying for an
unsecured loan. One is the period that you take to repay the loan,
repaying over a longer time might make the monthly repayments be more
manageable, but you will pay much much more in interest for a longer
period loan. Another thing is getting the money early - some loan
companies advertise they will get the money in your account 'the next day'
or whatever, but watch out for sneaky fees when they do this.
One last thing to mention is payment protection insurance
(PPI). Loan companies make a lot of their profits from people signing up
for PPI, but they don't tell you all the details in the small print.
Things to look out for are - there's normally no payment made if you get a
bad back or suffer a 'mental' illness. There's sometimes no payment if you
are made redundant within a specific period of taking out the insurance
and some companies only use
jobseekers allowance as a measure for you being unemployed. The problem
here is that you might not be entitled to jobseekers because of a
redundancy payment and even though you are physically unemployed the PPI
doesn't kick in. Other things to read in the small print are 'no refund'
policies if you settle the loan early.
So now that's settled, lets look at what the options for someone with a
poor credit rating are. The first is don't think that, just because you
have a few bad marks on your credit file, you won't be able to re-mortgage
in the mainstream market. In recent times the increase in sub prime
lending (including secured loans) has outstripped the main market and
because of this, the mainstream market has relaxed its rules slightly on
lending to people who are 'slightly risk adverse'. What this means is that
if you have just missed a couple of repayments on you existing mortgage or
have a country court judgement against you which is over, say, a year old
you may be still be able to get a lower interest mortgage from the
mainstream. Nowadays, mortgage lenders also frown less on people's
circumstances, so if you otherwise had a good credit history but it lapsed
recently only through something like divorce or redundancy they might
still consider you.
Summary
It is always better to consider your options when taking out any loan, not
just a secured loan. Other things you can do, not mentioned in this
document, are talk to an Independent Financial
Advisor, talk to friends and family and see if you can borrow the money,
or see if you have any assets to sell that could get you over the rough
period - you never know it might be shorter than you think. But always
think very carefully before committing to any financial transaction and
always research what you are signing up to - and watch out for the small
print.
About the author:
Adrian Hudson has a background in I.T management, but after noticing a
niche in the market, formed the finance consultancy business Sprint Soft
Ltd. Earlier this year he launched the specialist website
We Introduce You.
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