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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Secured And Non Secured Loans
Loans generally fall into two categories, secured and non-secured. Secured loans include things like mortgages, where you place your home up as collateral, or security, against the loan. Non-secured loans do not require any kind of collateral to be placed up as security, so they are a good choice for people who don’t won their own property for example. An even if you are a homeowner, you might not want to use your home as security against a loan.
So how do you go about finding a suitable lender? It’s actually quite simple. There are many lenders out there who are prepared to offer non secured loans to the a wide range of applicants, and many of these lenders make the application process very simple by allowing you to do the whole thing online.
You will want to make sure you have all the information necessary when applying. The application process can be quite detailed and you are likely to be asked all sorts of questions about your current monthly income and outgoings, your current employment status and employment history, any loans you currently have and details of your credit history.
Don’t worry though, if you answer all the questions honestly and provide the detailed information the lender is looking for, there is a good chance you will get your loan. Lenders are not stupid. They know that people are experiencing hardships with the economy the way it is.
Once you are offered a loan, you will no doubt notice that the interest rate is higher than it would be if you were to take out a mortgage or any other type of secured loan. This is only to be expected as you are not putting up any collateral.
On the plus side however, if you have a low credit score and are offered a non-secured loan, by keeping up the monthly payments you stand a good chance of improving your credit score over time.
Don’t rush into getting a non secured loan however. Think carefully about whether you actually need the money and make sure you have a plan around how you are going to pay it back.
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