What is a 125% Secured Loan?

You might have come across the title “125% secured loans” when looking for finance and if so, you may be wondering how this loan works exactly. Doesn’t this sound contradictory? How can you secure something at 125% of the total value? Indeed, 100% is the maximum you can secure on anything, surely?

You are right, to some extent. In fact, the truth is that 125% secured loans are really just partially secured loans. When entering into an agreement on such terms, you are really applying for two separate loans that are linked together. One of the two loans is secured at 100% of the total value of whatever you are buying, while the balance portion is actually a loan that is unsecured.

The manner in which this works is that you will be charged interest at a lower rate on the secured part of the loan, and a higher rate on the unsecured part of the loan. What lenders usually do is to package the two loans into one, under a single arrangement.

So, the next question you might want an answer to is where can you find a loan secured at 125%? Truthfully, this is not easy for a number of different reasons.

For instance, different regulations apply to non-secured loans and secured loans. In the UK, although the secured portion of loan terms will be covered by FSA (Financial Services Authority), the portion of the non-secured loan will not be. This is why, for such loans the administration costs are rather high and therefore, a number of lenders do not like to get into this.

All the same, if you are able to find a lender who will grant you one of these loans (and you can find such lenders if you really go out of way your way to look for them), it could be very useful to get a secured loan at 125% if, as an example, you wish to purchase a house and carry out some major renovation work and pay for it.

However, you should be prepared to put down more payment for this type of loan than what you would for a regular secured loan. Furthermore, you should be prepared for quite a bit of paperwork, too.

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