When a lender receives a secured loan application form he only has two areas on which to base his decision – you and the property. If he can put a tick in both of these boxes then you will get your loan at a good rate.
However, it is possible to still get your loan if either you or the property are not A1.
This is one of the good things about secured loans, they allow you to obtain a loan when other sources of finance may not be available.
Secured loans – You
Unfortunately, most things in this day and age are broken down and put into boxes and that includes you when you apply for a secured loan.
Your boxes will be:
o Your employment/ self employment
o How many outstanding loans you have
o Your usable (free) monthly income
o Your credit rating
o How you have treated your current (and previous if less than 12/ 24 mths) mortgage company
Secured loans – how to improve “you” in the eyes of the secured loan lender
Most applications for secured loans are made through a broker as most lenders do not like to gather all the information needed to process a secured loan. There is also a lot of overhead in this process which they prefer the broker to pay for.
Secured loans – rule 1
Make sure you find yourself a good secured loan broker. The secured loan lenders are not going to like me saying this but all brokers are not equal in the eyes of the lender. The better ones earn more money per application and get more secured loans paid out, as a percentage, than others.
These both directly effect you as the more the lender pays the broker the less of a fee he will need to charge you and the other reason is that you are more likely to get you loan paid out (and at possibly a lower rate) by using a well established secured loan broker.
Secured loans – rule 2
Work with you broker – not against him. I know it is a pain to keep having to produce paperwork but the more you have, the less pain you will receive when your full loan application reaches the secured loan lender.
Secured loans – rule 3
Go through your available income with your broker and get him to explain how the lender, he is putting you with, is working out your available income calculation. You might find you get a better rate if you do a bit of debt consolidation.
If you are self employed but have regular contractual work that you can prove goes back a few years, then you may be able to argue for a better rate. Self employed applicants for secured loans are usually penalised with the rate as they are considered a high risk.
Secured loans – rule 4
Your credit rating is nowhere near as important for secured loans as it is for personal loans (unsecured). However, it is still important if you want a good rate. Lenders of Secured loans (like most lenders) don’t like to see arrears on a credit report. A credit report will show the lender how you have paid your credit cards and loans over the last 12 months. It will also show any defaults or county court judgements.
Most secured loan lenders will ignore one months arrears on most loans as this can be argued that it is just a late payment. When you start to get to two months or more then you need a good (preferably provable) explanation or your rate will start to go north.
One thing secured loan lenders hate is current arrears when you apply to them for a secured loan. So, if you can, make sure your current commitments are up to date when you apply and this will keep your rate down.
Secured loans – rule 5
How you have paid your mortgage is sometimes more important than your credit report as the secured loans lenders see themselves as an extension of your mortgage and the best way they can see if you are going to pay them is to see how you have paid your current mortgage.
So, if you can, make sure your mortgage is up to date when you apply and if you have had any arrears then you will need a good explanation to keep your rate down.
To speed up you application you could get proof of your last 12 months payments from you mortgage lender and proof of the outstanding balance.
Secured loans – your property
Your property is the security that the secured loan lender has. If all goes wrong and you stop paying and communicating with the secured loan lender then eventually he will reposes your property (although he will not want to as it is creates another set of problems for them).
So, putting the above cautionary note aside, you are putting up your property as security for the loan. You are only doing this because it benefits you and you probably fall into one of the following categories:
o A lower rate than other unsecured loans offer
o A larger loan than is available through other financial sources
o You want a loan but your employment is questionable or you are self employed
o You have missed a few payments on some credit and the loan rates you are being offered from other sources are unpalatable
o Your credit is poor and you need to put up security to get a loan
It only makes sense that if you are putting your property up as security for your secured loan then you may as well maximize its value and get a lower rate.
The secured loan LTV (loan to value) is one of the major calculations that will effect the rate you are offered. It is simple to work out: you take your current outstanding mortgage, add to that the secured loan you are applying for and divide it by the current value of your property. The lower the percentage the better rate you should get.
So, if you want a lower rate then maximizing the properties value is one of the best ways to go about it. It might take a little bit of time but you could be paying for the secured loan for anything from 5 years to 25 years so the extra bit of effort could save you a lot of money in the long term.
Secured loans – property rule 1
You will almost certainly have a valuer come round to have a look at your property towards the end of your secured loan application.
Valuing property is not a science but an opinion and in this case the the persons whose opinion counts is the valuers that you have coming round. You don’t know if he has spent most of the day sitting in a traffic jam, had an argument with his children or forgotten his anniversary and what is more you can’t do a thing about it.
What you can do is be friendly and offer him a cup of coffee and make sure you have allocated time for him. Go round the property and point out any improvements you have made and are going to make.
Valuers like to be told that the property is going to be improved as it lessens their risk of getting sued by the secured loan lender in case they value the property wrongly.
Secured loans – property rule 2
Before the valuer gets to your property make sure it is looking its best. A small bit of effort will add thousands to your valuation if the property looks well kept rather than run down.
First impressions count so make sure the front and entrance hall is spotless, try and put any junk away to make the rooms look bigger and also try to finish those jobs that were half started and never quite completed.
Secured loans – property rule 3
As previously stated, the property value is an opinion so you need to make sure that the valuers opinion is the correct one. All valuers will contact local estate agents to see what is selling in the market near your property.
It would be to your benefit if you contacted the estate agents and got comparable properties that are on the market and recent sales. You can then decide which of your collection you wish to give the valuer (or you can send them on to your broker but this is not quite as good as giving them to the valuer).
Human nature being what it is, your comparables will probably end up in the valuers file and he will take these into account when valuing your property.