You may have heard of a secured loan and know that it’s secured to your property.
So if you’re not a homeowner, is it even possible to take out a loan?
Well being a homeowner only affects an application for a secured loan – also known as a homeowner loan. This is secured against your home to give the lender ‘security’ in case you stop making your repayments. If you do, they have the right to repossess your property to get their money back.
So obviously with a secured loan you need to be a homeowner. But a personal loan is different. Let’s take a closer look at personal loans and clear up any confusion between this and a homeowner loan.
What’s a personal loan?
A personal loan, also known as an unsecured loan, is designed for medium-term lending. Your property is not used as security with a personal loan. Because this means the lender is taking a greater risk lending to you, this type of loan usually provides a smaller sum than what you could get with a homeowner loan.
A loan can help you spread the cost of high priced items, such as a new car or new boiler. You then clear the loan by making one fixed payment to your lender each month.
Your repayments on a personal loan are relatively simple. You’ll know the exact amount you’ll need to pay each month when you take out the loan. Your payment will include money towards what you borrowed and interest. The interest rate on personal loans can be higher than on secured loans to make up for the added risk the lender is taking.
Will I be accepted?
When you apply for a loan, the lender or broker will want to check whether you’ve been a responsible borrower in the past.
They will look for negative footprints on your credit history, and if there are, this can affect your application. If the lender feels that you’ve not been responsible with your borrowing in the past – maybe you’ve missed payments – you’re application may be turned down too.
But, having a less than perfect credit history doesn’t always mean you won’t be accepted for a personal loan. You may find you’re accepted, but there is a higher interest rate attached, as the lender may see you as a more of risky borrower.
It's important to check your credit history before you apply for a loan. You can check it for free with a checking service like Noddle or ClearScore.
Before agreeing to take out an unsecured loan, make sure you understand what you can afford to pay each month. As we’ve mentioned, any missed payments have an affect on your credit history and future borrowing.
As well as your credit history, a loan provider will look at things like your income and outgoings. If they think your income isn’t big enough to cover your repayments, your application may be declined.
What other options do I have?
If you do own a home, you have the option of taking out a homeowner loan. But it’s important you can afford to pay back what you owe each month. Any missed payments can put your home at risk of repossession.
You could also explore your other options. For example, it may be that a credit card with a higher credit limit and a lower (or even 0%) interest rate is a more suitable for your needs.
We hope we’ve answered any questions you had. For information about Ocean’s personal and homeowner loans, head here.
Disclaimer: All information and links are correct at the time of publishing.