The best rates for secured loans are for applicants with the best credit scores – and to access these rates will depend on factors such as your income, credit score, the value of your property and the equity in your property.
Every secured lender is different and will have a separate criteria for secured loans, second charges and debt consolidation loans – and the rates may even vary during different times of the month or year.
Understanding what factors influence the rate you are charged is very useful and can help to get you the best deal, whether it is a secured loan against your house, flat, vehicle or other property you own.
You should also consider using a secured loans broker like Lending Expert who can offer a free and impartial quote across multiple lenders. You can check your eligibility in less than 5 minutes >>
What is a Secured Loan Rate Made Up Of?
A secured loan consists of interest and fees, where the interest is the monthly payments that you will be charged for having the loan open.
The longer the loan is open, the more interest that accrues. The interest rate you are charged will be low (from 3% to 8% per month) if you are a good quality and low-risk customer, but the more risk that the lender takes on, the higher your interest rate will be.
There are also some initial fees to consider with a secured loan or mortgage, such as broker fees (1-2%), arrangement fees, survey fees, legal fees and early repayment fees.
What Factors Affect The Rate You Get for a Secured Loan?
- How much you wish to borrow
- How long you want to borrow for
- Your income
- Your credit report
- The value of your property
- The equity in your home
- Affordability and other debts you owe
How Much You Wish To Borrow
Whilst this may vary between lenders, the more that you are looking to borrow, the lower the rate should be, because overall you will be paying more interest to the lender. This is known as a ‘tiered interest rate’ – so the more you borrow, the lower the rate you pay.
Equally, if you are borrowing just a small amount, such as £500 or £1,000, there is not a huge return for the lender, so they will charge a little more interest to make it worthwhile.
How Long You Want to Borrow For
The longer you wish to borrow for, the lower the rates you are charged, to make this affordable for you.
If you think of a mortgage, the rates are usually very low, but this is because you are borrowing over 10, 25 or 40 years.
By borrowing for longer, the interest is accruing, so overall you may find that you are paying more for your loan with a lower rate over 10 years, compared to a higher rate over 5 years. In this case, it is important to only borrow the amount you need, to avoid interest adding up and paying more than you need to.
Having a stable income is a good indicator that you might be a good person to lend to, with the ability to pay back your loan each month on-time. The lender will need to take other factors into consideration such as your credit score, property value and outstanding debt, but a good income should certainly help you access the best rates.
Fundamentally, your eligibility for a secured loan and the rate you are offered is based on how risky you are as a customer. But having a good stable employment and income suggests that you are lower risk – and so you could be eligible for the best rates.
Your Credit Score
Whilst credit scoring is not key to be eligible for secured loans and it is not even looked at by some lenders, your credit history could be important to determine what rate you are charged.
Certainly, if you have kept a good credit history and have always repaid your bills and other creditors on-time, you should be able to access the best rates.
In contrast, if you have a bad credit history or recent CCJs, IVAs or bankruptcy, this is something that could impact your chances of approval or mean that you are charged a higher rate to manage the potential risk for the lender.
For more information, read does my credit score matter for a secured loan?
The Value of Your Property
When using a secured loan, your property is used as collateral and the lender could eventually repossess this if you are unable to keep up with repayments (as a last resort).
So having a valuable property, flat or home that is in good condition will make your application stronger – and give you access to the best rates for secured loans.
If your property is not worth too much or is in poor condition, this could impact your application or mean that you are charged a higher rate.
The Equity in Your Home
To get the best rates for secured loan products, you should ideally have more equity in your home, since this will mean that you own more of the property and this is valuable if you were to sell it.
Having more equity in your property essentially puts you in a more commanding position and suggests that you have successfully made repayments over several years. This makes you a lower risk overall and so you should be able to borrow at better rates.
Affordability and Other Outstanding Debts
Secured lenders should always take your affordability and any other outstanding debts into consideration that you may have. Whilst your income might be strong and stable, you could have a lot of financial liabilities whether it is paying a mortgage, for cars, credit cards and other financial obligations.
The lender will determine your affordability and if they can conclude that you are not financially stretched, you will be considered less of a risk and therefore able to access a lower rate.
Why Should I Use a Broker?
There are some real benefits for using a secured loan broker to truly get the best deal. With multiple lenders across the UK, a broker can offer a quote from all of them in one place, saving you time from applying with each lender one-by-one.
Trying to get the best rates can be tricky and the same application could yield very different responses from two different lenders, only because each provider has their own criteria and way of assessing risk.
With a broker, you are not charged any fees unless the application is successful. Even though there is a fee to pay, you may still be saving money because they will help you get approved and this should be at the most competitive rates too.
To check your eligibility for a secured loan with Lending Expert, you can get started here in less than 5 minutes >>