Your bad credit history and secured loans

You can borrow huge money by pledging your home. These types of loans are called secured loans. These loans provide maximum assurance to the lenders. They know that their money is safe as they have got a security to depend on. This allows them to lend money even to borrowers who have a bad credit record.

A bad credit score in the past is often seen as an indicator of future events. The lenders perceive that a person who has defaulted in the past may also do so in the future. This apprehension on part of the lenders makes it difficult for the bad credit borrowers to avail finance. But, when the same borrower approaches the lender with his willingness to pledge his home, the matter becomes little different. In such a scenario, the lender may accommodate the wishes of the borrower as far as possible.

Secured loans, like most loans are based on the ‘give and take’ concept. A borrower gets big loan amount and the lender gets security for that loan amount. The lender feels assured in the presence of a security and the borrower gets a loan at low rate of interest. These loans are surely beneficial for both the parties to the transaction. These loans enable you to get a loan amount that may go up to £250,000. So, if you have a big requirement, just opt for secured loans.

The exact amount that you can get depends on many factors like the value of security, your previous credit record, your repaying capability, etc. Here, LTV (loan to value) ratio is an important thing to understand. The LTV ratio is the amount of loan expressed as a percentage of the total equity in your home. The lower the LTV, the more are the chances of getting a big loan from the lender. Normally, you can expect 80 percent LTV. However, some lenders have different policies and they can give you up to 125 per cent of the value of your home.

Since secured loans enable you to get big funds, these are ideal for large one-time investments like home improvements, vehicle purchasing, debt consolidation, buying another home, etc. With these loans, you can repay your existing debts – credit card bills or any other loans pending against your name. Secured loans can be beneficial because these loans entail low interest rates whereas credit cards companies are known to charge hefty interest from the customers. So, repaying and settling your credit card bills by taking out secured loans can be a good bargain.

Bad credit secured loans give you a chance to write off your bad credit history. For this purpose, you will have to show good conduct and punctuality in repayments. This will help you in re-building your creditworthiness in the financial market. Various credit reference agencies like Equifax and Experian record every transaction that has a bearing on your financial standing. All County Court judgements, incidents of default, etc., are recorded by these agencies and the information is further sent to the lenders on request. The agencies charge some money for rendering these services. That is how bad credit record of a particular person can be checked.

In case of secured loans, your property is always at risk. If you are not regular with your repayments and make default, you may land yourself in trouble. The lender may repossess your property and eventually sell it to recover his dues. So, you should be regular with your repayments. Some borrowers take out payment protection insurance policies to save themselves from extreme situations. PPI policy helps you in case you in conditions like permanent illness, accident or being out of work. In such circumstances, the insurer pays for you and your assets remain safe.