What happens when I check my eligibility?
When you check your loan options through us, we run a soft credit check. This doesn’t affect your credit score in any way and is not recorded on your credit file.
When you check your eligibility, we try to show you as much information as possible after just a soft search, including real rates and your chance of approval.
Not sure what we mean by real rates? Check out our guide, What are real rates?
If you are eligible for finance, you’ll then see your loan options. If you decide to apply for a loan, your chosen lender may then run a hard credit check. This type of credit check is recorded on your credit file.
Can I get a homeowner loan with bad credit?
Yes, it is possible to get a homeowner loan with bad credit. This is because the loan will be secured against your home, adding an extra layer of security for the lender.
With a homeowner loan, you can borrow from £5,000 to £500,000+ and spread the cost over 1 to 30 years.
That said, you should think carefully before securing finance against your home. If you are unable to repay your loan, as a last resort your lender could repossess your property to recover their funds.
To apply for a homeowner loan, you’ll need to be a homeowner with equity in your home.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
If you would like to learn about what gives you a bad credit score, check out our blogs, guides and FAQs.
Can I get a loan with bad credit?
This very much depends on your individual circumstances. When it comes to personal loans, lenders will look at your credit score to decide whether to offer you a loan and determine your interest rate. Generally if you have bad credit, you will be charged a higher interest rate.
If a personal loan isn’t an option for you, you may still be able to consider:
Although your credit history does play a big part in your eligibility for finance, there are other factors that a lender will consider, such as your income, expenses, size of the loan you are looking for, how much debt you already have and your homeowner status.
Can I get independent advice about debt consolidation loans?
Why might a debt consolidation loan be declined?
If you’ve been declined for debt consolidation loans, there are a number of reasons why this could, in fact, happen. A lender will use your credit report as well as their own lending criteria to make a decision on whether they will offer a loan. If you are not on the electoral register or if you have recently moved jobs or house, then these factors can affect a lender’s decision to decline a loan application.
What is the risk of a debt consolidation loan?
There are debt consolidation loan risks, but they are mostly the same as with most other types of loans. For example, when loan repayments are late or missed, then it can affect your credit score. Likewise, if the loan is secure and then you default on it, your home or asset may be at risk.
Can a debt consolidation loan be secured?
Yes. Secured debt consolidation loan (as well as unsecured debt consolidation loans) exist. If you have a secured debt consolidation loan, they secure it against an asset like your property. This added security lowers the risk to the lender and this means a secured loan may come with lower interest rates than an unsecured personal loan, giving you lower monthly payments.
Despite all of this, a secure debt consolidation loan is not without a certain element of risk. Think carefully before securing other debts against your home. Your home may be subject to repossession if you do not keep up repayments on a mortgage. Not to mention any other debt secured on it.
What to consider when checking your eligibility for a consolidation loan
Like with most loans, debt consolidation loans can be categorised into two different categories. These are secured and unsecured loans.
Secured debt consolidation loans are loans where the amount you borrow is secured against the value of an asset that you own, usually your home. This means that, by taking out the loan, you are acknowledging that if you miss the repayments, your home or asset may be at risk.
Unsecured debt consolidation loans, on the other hand, do not require an asset to be secured against.
When searching for a debt consolidation loan, don’t be tempted to borrow more than you need. Any amount you borrow will still need to be repaid. When checking your eligibility for a debt consolidation loan, it is worth keeping a few things in mind:
- Although you’re reducing the number of debts to a single debt, you could be increasing the term of the loan.
- You may benefit from lower monthly repayments – but the total amount repayable may be higher overall.
- Be sure to compare the interest rate or APR (annual percentage rate) of your existing debts with the interest rates of the debt consolidation loan. This will help you ensure that you benefit from consolidating your debts.
What are the limits on debt consolidation loans?
The limit will vary from lender to lender, as certain lenders will offer to consolidate more debt than others. The maximum you can consolidate will also depend on your personal circumstances.
The limit on debt consolidation loans will vary from lender to lender.
What kinds of debts can be consolidated?
You can usually consolidate debts such as credit cards, store or retail card debts. Also: overdrafts, medical bills, student loans as well as other unsecured personal loans. There are other debts that you need to consider as well. But with mortgages, debt consolidation loans cannot cover them.
Why debt consolidation as a solution?
We do get asked “why debt consolidation” a lot. Simply put, if you have multiple debts (loans, credit cards, overdraft, etc.) and are struggling to repay them all each month, then consolidating those debts into one payment could make managing your finances a little easier for you.
A debt consolidation loan groups all your different debts together. This could mean:
- Monthly repayments are easier to manage;
- You spend less time sorting out all your different repayments;
- It’s simpler to budget;
- You may be able to reduce overall monthly repayments;
- You could save money by switching to a loan with a lower APR;
- You could reduce your monthly repayments by spreading them out over a longer term (although this may increase the amount of interest you pay back overall);
- You could reduce the term of your debt and save money on interest.
Why debt consolidation can work
Like with most loans, if you don’t keep up with repayments throughout the term of your contract, then it can negatively affect your credit score. That being said, with just one monthly repayment to remember, you may find it easier to stay on top of your finances.
Regularly repaying a debt consolidation loan (on time) could help improve your credit score in time.
What is debt consolidation?
So, what is a debt consolidation loan? A debt consolidation loan can be used to pay off multiple loans, credit cards, store cards or overdrafts so that each month you just make one single monthly repayment to a single lender. This simplifies the debt, keeping it all in one place and potentially making it easier to manage.
You could also use a debt consolidation loan to pay off just one credit product (e.g. a single personal loan or credit card) that has a higher APR. If you’ve been consistently making repayments for a while, your credit score may have improved since you first took out your current credit products. This means you might now be eligible for a better rate and able to reduce the amount of interest you’re paying by switching to a debt consolidation loan with a lower APR.
If you’re thinking of consolidating your loans, credit and store cards into one, you should know that it might mean extending the term (that’s the length in months) of your debt, as well as increasing the total amount you repay.
What is a remortgage?
Remortgaging simply means replacing your existing mortgage. Because many people who reach out to us want to know what is remortgage a house.
What is the myfreedom marketplace?
The myfreedom marketplace is where you’ll find all the tools you need to get your finances on track, as well as a few businesses who help to make the world of finance Baffle-free. In the marketplace, you can quickly see if you can save money on your household bills, take our quick credit coaching modules and find out if you’re missing out on money from the government.
I’ve got a good credit score – can I still benefit?
Yes, you could still benefit from checking your eligibility with your Fusion Score. We have some lenders that need to run an affordability check using Open Banking, so this could increase your chance of acceptance.
Will creating my Fusion Score damage my credit score?
No, creating your Fusion Score won’t impact your credit score in any way. Learn more about your Fusion Score in our blog post Freedom Finance launch open banking enabled ‘Fusion Score’ helping both lenders and consumers.
Is my Fusion Score free?
What if I can’t find my bank when setting up my Fusion Score?
If the bank you use for your current account isn’t listed as an option, this means that your bank hasn’t enabled Open Banking yet and we won’t be able to set up your Fusion Score at this time. If you have a secondary bank account from a bank that is listed, you can use this account instead.
What is Open Banking and is it safe?
Open Banking is a safe and secure way for us to take a snapshot of the data we need to create your Fusion Score.
Originally set up by Competition and Markets Authority on behalf of the UK government, it is regulated by the Financial Conduct Authority (FCA). Many of the UK’s biggest banks are enrolled on the Open Banking Directory.
In addition, it allows you to share powerful data from your bank account that we can use to create your Fusion Score. When you connect to your bank account via myfreedom, it’ll only give us one-time, read-only access, and we won’t be able to move or affect your money in any way.
Learning more about what open banking is
Who do you share my data with?
How do you access the information needed from my bank account?
To view and extract a copy of data we need to create your Fusion Score, we use Open Banking. This is an FCA regulated, safe and secure way for you to consent to sharing information from your bank account.
How do I create my Fusion Score?
If you didn’t set up your Fusion Score when you signed up to myfreedom, you can set up your Fusion Score in the Fusion Score tab on your myfreedom dashboard.
To create your Fusion Score, we’ll need you to connect to your main bank account (the one your income is paid into) via Open Banking. This is safe and secure, and we won’t be able to affect your money in any way. Simply follow the step-by-step instructions, then once you’ve connected, it’ll take a minute or two to fuse your bank account data to your credit history and generate your Fusion Score.
Is my Fusion Score the same as my credit score?
It is important to understand when comparing a Fusion Score vs a Credit Score that no, they’re not the same. Your traditional credit score that’s provided by credit referencing agencies is used to help create your Fusion Score, but we combine it with transaction data extracted from your bank via Open Banking. This gives a more holistic view that we then turn into an easy-to-understand score out of 9.9.
What is my Fusion Score?
Your Fusion Score is a combination of your credit score and information from your bank account shown as one simple score ranging from 1.0 to 9.9. By combining these two important eligibility factors into one score, you get a clearer picture of how lenders see you when you apply for finance, as well as personalised details on what’s improving your score or holding you back.
How much can I borrow for a buy-to-let property?
Thinking about borrowing against a buy to let property? How much you can borrow for a buy-to-let depends on the property’s rental income per month. This will be used to work out how much you are able to borrow to purchase it.
What size deposit do I need for a buy-to-let?
When should I speak to a mortgage advisor?
It’s best to speak to a mortgage advisor when you know how much you have to spend on a property. Additionally, it’s a good time to do it when you know what rental income will be achievable per month.
Do I need to own my own home to get a buy-to-let mortgage?
There are fewer options available to landlords who don’t also own the home they live in, however it is still possible to get a buy-to-let mortgage.
Can I move home if my current mortgage contract hasn’t ended?
Yes, you can. However, you may face exit fees and early repayment charges. Check the terms of your current mortgage to find out how much you will need to pay and whether it’s worth waiting until your mortgage contract ends. You could also look into transferring or porting your current mortgage deal to your new property.
Can I transfer my existing mortgage onto a new property?
This all depends on your current lender and mortgage contract. If you wish to do this, get your current mortgage details and speak to an adviser. They will be able to tell you if porting is possible and whether that is the best solution – sometimes it is worth paying the early repayment charge and getting a new product. An expert adviser will be able to get you the right solution.
Will I need another deposit?
This all depends on the value of your next property compared to your current property, and how much equity is currently in your home. If you’re downsizing or have been paying off your current mortgage for a long time, it’s likely that you’ll have enough equity in your home to cover the deposit needed for your new property.
If you’re upsizing, the deposit you need for your new property is going to be bigger than the one you needed for your current home. If you’ve been paying off your mortgage for a while now, you may have enough to cover it from selling your home. If not, you’ll need to find the money to pay the difference.
What should I think about before I remortgage?
Before you remortgage, check your credit report well in advance to make sure it’s in as healthy a position as possible. If you spot any errors, make sure you get them removed.
Other remortgage considerations
You can also check if there are any quick credit score-boosting wins that you can capitalise on. For instance, registering to vote or keeping your credit utilisation low for the next few months.
Can everyone remortgage?
To remortgage, your outstanding mortgage must not be more than 95% the property value. This means the equity you have in your home (how much of it you own) must be worth at least 5% of the property’s value.
How long does it take to remortgage?
How long does it take to remortgage a house? In general, remortgaging can take up to eight weeks. You can usually secure a new mortgage deal from three to six months before your current deal ends, depending on your existing contract.
For more, read how long does it take to remortgage and release equity.
When should I remortgage?
There are a few different reasons why you might want to remortgage. Moreover, we’re asked regularly when should I remortgage?
First, those reasons why you might want to do so include:
- Your current mortgage deal is coming to an end.
- You want a better rate.
- The value of your house has increased.
- You want to borrow more.
- You want to overpay, and you can’t on your current deal.
Things you should consider when you think about remortgaging
Be mindful that you might choose to remortgage earlier than six months before your current mortgage deal ends. But if you do, there might be an early repayment charge to consider.
Can I make a joint mortgage application?
Yes, you can make a joint mortgage application.
You’ll need to have the other applicant’s consent. This also includes their personal details and information about their financial situation. For instance, the other applicant’s income and spending tendencies when making your application.
How is my mortgage rate calculated?
Your mortgage rate (or APRC) is how much you’ll see in charges to borrow money over the term of your mortgage. This also includes any additional fees or charges. As a result of all this, you’ll see the expression of this as a percentage. This is in order to help you easily compare different mortgages.
How to calculate a mortgage rate
There are many factors that can influence your mortgage rate. But two that you can have an impact are your credit score and the size of your deposit. A good credit score and a bigger deposit can give you a lower APRC. In turn, that means cheaper monthly payments. That’s how to calculate a mortgage rate.
how much deposit do you need for a house?
How much deposit do you need for a house? Well, you’ll usually need to pay around 10% of the property’s value. However there are mortgages that only require a 5% deposit.
More is always better when it comes to how much you need for a house deposit
Rule of thumb: more is better. In short, the more you can put down as a deposit in relation to the property’s value (i.e. the lower your LTV ratio), the lower your monthly repayments are likely to be.
How much can I borrow on a mortgage?
First, you’ll need to decide whether you’re buying a property on your own or with someone else. If you’re buying with someone else who has an income and can contribute towards the house deposit, it’s likely you’ll be able to borrow more. That’s one part of discerning how much can I borrow on a mortgage.
How much I can borrow on a mortgage?
There are mortgage calculators online that’ll give you a rough idea of the maximum amount you can borrow. You can then use this to set a budget for your new home.
How do I apply for a mortgage?
To apply for a mortgage, you’ll need to speak to a mortgage adviser. They will find the right mortgage option for you. Once you’ve had your offer accepted on a property, they will then take you through every step of the mortgage application process. You’ll also need a solicitor (conveyancer) to complete the legal work involved with buying a home.
Do I have to have a mortgage to buy a home?
No, if you have the cash to buy a property outright, you don’t need a mortgage to buy a home. If you don’t have that much cash available, you will need to apply for a mortgage.
What’s the difference between interest-only vs repayment mortgages?
People often ask us to compare interest-only vs repayment mortgages and what the difference is.
The Interest-only vs repayment mortgage
An interest-only mortgage is where you only pay off the interest the grows on your mortgage. This can mean that your monthly payments are lower. However you will need to eventually repay your mortgage once your the term comes to an end.
More about the repayment mortgage
The most common option is a repayment mortgage. This is where you have the security of paying off a bit of the loan as well as the interest with each monthly payment. If all repayments take place, at the end of the term you will own the property completely.
Fixed vs variable rate mortgage: what’s the difference?
We often get asked about the difference of a fixed vs variable rate mortgage. Here it is, in a nutsell.
With a fixed rate mortgage, your mortgage repayments will remain the same for an agreed fixed rate period – often from two to five years. After that, it’s common to remortgage to a new fixed rate deal, or your mortgage will revert to your lender’s standard variable rate (SVR).
With a variable rate mortgage, your mortgage payments could go up or down during your mortgage term.
Types of variable rate mortgages
There are two main types of variable mortgage:
- Tracker mortgages, which track the Bank of England base rate, and;
- Discount mortgages, which offer a fixed discount on the lender’s SVR (which can fluctuate).
How to decide on fixed vs variable rate mortgage
Your mortgage adviser will tell you what the best option for your circumstances is after completing a fact find with you and getting to know your requirements.
What is an LTV ratio?
LTV ratio stands for loan-to-value ratio. Your LTV ratio is used by lenders to decide how risky it is to lend you the money to buy your home.
It compares how much of the property you will own – i.e. how much deposit you can put down in relation to the property’s value – to how much they will need to lend to you to make up the difference. The lower your LTV ratio, the better the mortgage rate you’re likely to be offered.
What affects your mortgage rate offer?
There are a few different factors that affect the mortgage rate you’re offered. Two things that you can do to improve the rate that you’re offered are:
Mortgage rate offer factors
- Having a good credit score;
- Putting down a bigger deposit.
What is APRC?
APRC stands for Annual Percentage Rate of Charge. It shows how much it will cost you to borrow money over the term of your mortgage, taking into account any additional fees or charges. APRC also takes into account that your lender may offer you a lower interest rate for the first few years. It is then expressed as a percentage so you can easily compare your different mortgage options.
APRC vs APR
Who is eligible for a mortgage?
To be eligible for a mortgage, you’ll need to have a few things going for you.
4 critical factors to be eligible for a mortgage
- You must 18 years old or older.
- A deposit of at least 5% of the property’s value.
- An income (or joint income) that would allow you to comfortably make your mortgage repayments.
- A healthy credit score.
What is a mortgage?
A mortgage is a type of loan that’s used to buy a property. With a mortgage, the finance you borrow to buy your home is secured against the value of the property. This means that if you are unable to repay your mortgage, your lender could take your home to recover their costs.
What does score booster mean?
Score booster is our term for credit builder products. It refers to a product that you can use to help give your credit score a boost. With a score booster or credit builder card, when used little and often and repaid in full each month, it can improve your credit score over time.
What’s the difference between a personal loan and a credit card?
How do you compare a personal loan vs credit card?
With a credit card, you have access to a line of credit. Consequently, you can spend up to a certain limit each month. Once you repay what you owe, that amount is available to you again. Then they charge you interest on your borrowing only if you don’t repay what you owe in full when your bill is due. There are many different types of credit cards that have different features and benefits. These range from helping you spread your costs, clear existing credit card debts or giving you rewards for your spending.
More about personal loan vs credit card
With a personal loan, you borrow a fixed amount off a lender. Then you pay it back in monthly instalments plus interest over the term of your loan. Once you repay your loan in full, you’ll clear your debt. Then, they apply interest to the amount you borrow over the whole term of your loan. As a result, you’ll pay back more than you borrow at the end of your term.
How do I cancel a credit card?
To cancel a credit card, you’ll need to have cleared the balance. Once the balance has been cleared, get in contact with your credit card provider and let them know you want to cancel your card.
Simply not using the card will keep the account open. Therefore, it’s critical that you contact your credit card provider if you want to close it.
What is a cash advance?
A cash advance is a service provided by most credit card companies. In short, it allows you to withdraw cash from an ATM or at your bank using your credit card. Your cash advance limit may be different to your card’s credit limit. Consequently, the APR they charge you with may be different to your card’s usual APR. You’ll face charges on interest for a cash advance from the moment you borrow the money to until you repay it.
What is 0% purchase credit card?
A 0% purchase card allows you to spend on your credit card without being charged interest for the 0% period.
This means that if you wanted to spread the cost of a big purchase or a number of small purchases, you could make the payments on your credit card, then pay it off in monthly instalments before the end of your 0% period.
Just remember that once the 0% period ends, the card’s usual interest rate will apply to any remaining balance.
What is a balance transfer card?
A balance transfer card allows you to transfer a balance from one credit card to another. Balance transfer credit cards often come with 0% interest for a fixed term, for instance the first four months of you owning your credit card.
Balance transfer card definition
This means that you can transfer the amount you owe from another credit card (usually for a fee), and not pay interest on the balance for the 0% period. This can give you more time to pay off what you owe without your debt increasing. When your 0% period comes to an end, the card’s usual interest rate will apply to any remaining balance.
How long does a PIN number take to arrive?
This will also depend on your credit card provider. In essence, your PIN number will usually arrive separately from your credit card. So it’s really hard to say for certain how long it will take for your PIN to arrive.
How long will it take for my card to arrive?
The answer to this question ultimately depends on your credit card provider. But usually it takes between seven to ten working days from the date they accept you. Your PIN will arrive separately from your credit card.
What happens if I miss a monthly repayment?
If you don’t make at least the minimum monthly repayment, this will have a negative impact on your credit score. When you miss monthly repayment, it can remain on your credit report for up to seven years. Therefore, it’s important you don’t borrow more money than you can afford to pay back.
Can a credit card improve my credit score?
Yes: with a credit card, credit score can go up. But only if you make at least the minimum repayment on your credit card each month. As a result of that, it’s possible that your credit score would ultimately improve over time.
Can I have more than one credit card?
Yes, you can. If you already have a credit card, you can apply for a new card to take advantage of its different features and benefits, such as balance transfers or 0% on purchases.
What is a 100% pre-approved credit card offer?
If you receive a 100% pre-approved credit card offer, it means that you’ll definitely be accepted by the credit card provider if you apply*. We show you this information so that you know which card options you’re most eligible for and to help reduce the chance of a credit decline being recorded on your credit file.
*Approval for pre-approved credit card offers, however, is subject to final lender and fraud checks.
How is my APR decided?
The APR you are offered depends on both the credit card you are eligible for and your credit score. Some credit cards will have a set APR. Others may have a range of APRs which vary depending on your credit score and personal circumstances. In this instance, the better your credit score, the lower the APR you are likely to be offered. For more information, we have written a full guide on Annual Percentage Rates explained. You might also like to know what an APR stands for.
How is my credit limit decided?
The credit limit you are offered will depend on your credit history and personal circumstances. This means it could be lower than the maximum credit limit available.
How does a credit card work?
A credit card gives you access to a line of revolving credit. When you get a credit card, you’ll be given a credit limit (maximum spend). You can spend up to this amount on your credit card.
You’ll need to make at least the minimum monthly repayment on your credit card each month, or pay the balance off in full. If you don’t pay the balance off in full each month, you’ll be charged interest on your remaining balance. If you do clear your entire balance on or before your repayment date, you won’t be charged interest on your spending.
What are the benefits of having a credit card? Find out in our blog posts.
What rates can I get?
So: what kind of loan rates can you get? Well, the rate or APR lenders offer you will be based on your credit history and personal circumstances.
Here at Freedom, we show you real rates as much as possible when you check your eligibility with us. This means we show you the actual rate you’ll get if you decide to apply. To find out what rates are available to you, simply check your eligibility with us. Then, we’ll give you a quick online decision.
Will an eligibility check affect my credit score?
No, using our eligibility check won’t affect your credit score in any way. We only carry out a soft search when we find you your finance options, meaning that the search won’t be recorded on your credit file. If you do decide to accept an offer, your chosen lender may then carry out a hard search to run their final checks.
How many lenders do you have?
Are you a credit broker or a lender?
We’re a credit broker. This means that when you check your loan, credit card or car finance options with us, we use smart decisioning to check your details against our one of many lenders’ eligibility criteria and find you options that you’re eligible for. If you have more than one offer, you can then go through your options to find the one that’s right for you.
What’s the difference between a personal car loan and hire purchase?
There are a few key differences between personal car loans vs hire purchase (HP) agreements:
So here’s a point by point breakdown.
- You can borrow more with HP – up to £200,000;
- HP agreements place the burden of security against your car, whereas a personal loan is not;
- With a personal loan, you’ll always own your car from the point of purchase. But with HP agreement, you’ll own your car once you make the last payment;
- You might need a deposit with for HP, you won’t with a personal loan;
- You have more flexibility on where you can buy your car from with a personal loan;
- There may be mileage restrictions with HP while you pay off your finance.
How much can I borrow?
The amount you’re eligible to borrow will depend on your credit history and personal circumstances. Typically personal loans range from £1,000 to £35,000 over terms of 1 to 7 years. Contrastingly, homeowner loans range from £10,000 up to £2,000,000 over terms of 1 to 30 years.
For credit cards, all cards come with a minimum and maximum credit limit. The credit limit a lender can offer you will depend on your personal circumstances. Suppose that a lender does not offer the maximum credit limit straight away. Accordingly, your credit card provider could increase your credit limit in the future.
What is hire purchase?
With a hire purchase agreement (HP), the finance is secured against the value of the car. This means you won’t officially own the car until your last payment has been made. You’ll need to buy your car from a dealership that’s been approved by your chosen lender, then you’ll pay for your car in monthly instalments plus interest over the agreement term. Some lenders will need you to pay an initial deposit at the start of your agreement.
What is a personal car loan?
A personal car loan is an unsecured loan which you can use to purchase a new or used car. With a personal loan, you borrow a fixed amount off a lender, then pay it back in monthly instalments plus interest over the loan term.
Which types of car finance can I check my eligibility for?
Here at Freedom, you can do a car finance eligibility check for both personal car loans and hire purchase agreements. If you’re eligible for both, you’ll see both options alongside each other in your search results. Moreover, checking your eligibility with us won’t harm your credit score.
What is the difference between a secured loan and an unsecured loan?
When looking to borrow money, it is important to understand the difference a secured or unsecured loan and why you might want one. Whether you are looking to purchase a new car, wanting to consolidate debt, or take out a loan to renovate your home, both secured or unsecured loans could be an option. The decision will depend on your personal circumstances and various factors that you need to consider.
- Require an asset to secure the loan against —usually this is your property in order to get a secured loan
- Tend to be for larger amounts.
- Tend to be over a longer period of time.
- Can result in lower interest rates.
- Do not secure the loan against your assets.
- Typically these are for smaller amounts ranging from £1,000 – £35,000
- Tend to be for a shorter period of time.
- Interest rates may be higher than a secured loan
What is a Secured Loan?
The Definition of a Secured Loan
A secured loan means that you can borrow money secured against an asset that you own. Secured loans are taken out over a fixed period of time, in which you agree to pay back the loan. Failing to do so, or defaulting on the loan, may result in the sale of the asset in order to recoup any losses.
What are Secured Loans for?
Secured loans are used to borrow large sums of money against something you own, using it as collateral. They are often used for major expenses, such as large-scale house improvements or debt consolidation, and can be taken out over a long period of time. – If a secured loan is taken out against your property, you are agreeing that, in the case that you can’t pay off the loan, you may need to sell your house to make the payment. Likewise, if you used your car as an asset, it may be repossessed if you don’t keep up your repayments. Lenders may see secured loans as lower risk because they know they can collect the money you owe from your assets – if you don’t make the repayments. Because of this security, secured loans may come with better interest rates and longer repayment terms. This can mean lower monthly repayments compared to an unsecured loan -.As with all borrowing, you should consider the total amount you will need to repay overall when considering a product. The amount you are able to borrow and the rate that you are quoted by the lender will depend on your circumstances as with all loans – and with a secured loan, the amount of equity you have in your property will also affect this. If you are a homeowner but your credit history is not perfect, you might find that you are offered secured loans. –
What is an Unsecured Loan?
The Definition of an Unsecured Loan
So, what is an unsecured loan? Well, an unsecured loan is quite straight forward. You borrow money from a lender over a set time period in which you agree to pay back the loan. An unsecured loan is not secured against an asset but failure to make payments on time can can incur additional charges or consequences such as affecting your credit rating.
What are Unsecured Loans for?
Typically speaking, unsecured loans are used to pay for smaller expenses compared to secured loans, these could be things such as car repairs but they can be used for home improvements, a car purchase or debt consolidation. Being smaller value loans, unsecured loans tend to have a shorter repayment terms than secured loans. There can be flexibility and you can pay over various terms of up to around 7 years. Unsecured loans can have a simpler application process than secured loans as they are not secured against an asset It is important to note with unsecure loans, if you don’t make payments, it is possible that additional charges could be applied to the loan. This will show on your credit record. Likewise, in the event that an unsecured loan is not able to be paid back, the lender may still take action to get their money back.
How to know if a Secured or Unsecured Loan is right for you
When looking at a secured loan vs an unsecured loan, there are several things to take into account. If you only want to borrow a small amount of money, for a car repair or small home improvement, then an unsecured loan may be the right option for you. Unsecured loans can be ideal for small amounts of money, with no need of an asset to be secured against the loan. Unsecured loans can also have shorter repayment periods; however, they can also have a higher interest rate. This is due to the shorter lending period. Secured loans, on the other hand, can be for larger sums of money. It is for this reason that they can be suited for large home renovation projects, or to consolidate debt. Secured loans, unlike with unsecured loans, require for an asset to be placed against the loan. It is for this reason that secured loans often require the borrower to be a home owner, in order to use the house as collateral. This is not always the case as, depending on the lender and the amount, other assets can be used – like a car or valuable jewellery. The second aspect worth considering your loan is what your credit score is like. Credit score is taken into account with both secured and unsecured loans. If your credit score is good or excellent then it may be possible to get a high value unsecured loan. If, on the other hand, your credit score is lower than good, then a secured loan may be more viable.
Choosing the Right Loan for You
Before areeing a loan, it is absolutely vital to ensure that the secured or unsecured loan you go for is right for you. If you would like independent advice, it is possible to contact the Money Advice Service. The Money Advice Service is an independent service that offers free, impartial advice. Call 0300 500 5000 or visit the Money Advice Service website.
Who can get an unsecured loan?
Lenders will offer you an unsecured personal loan depending on your ability to repay the money you borrow. To decide this they will take your credit report into account.
A credit report tells lenders about the type of accounts you’ve held. This will include any bank accounts, credit cards, car loans, mortgages and so on. It will also have other details such as the account opening dates, your credit limits and loan amounts. What is more, a credit report will include a score that can change based on how regularly and reliably you pay back loans. In a nutshell, a credit report is your financial history and financial reputation.
You can find out more about your credit score here.
Why you might want an unsecured loan
Unsecured loans or personal loans are often used for small value purchases.
Unsecured loans are better suited to small amounts of borrowing as they are usually set at a fixed interest rate over a fixed repayment term.
Unsecured loans are typically used for:
- Debt consolidation
- Home improvements
- Car financing
There can be benefits to taking out an unsecured loan, one of which is that if you stick to your monthly repayment plan, it can help improve your credit score. By improving your credit score it can make it easier to get credit again in the future, whilst also potentially increasing the amount lenders are willing to let you borrow. It can also affect the interest rate they offer in relation to the personal loan you are asking for.
How much money can I borrow?
The precise amount of money you can borrow through an unsecured personal loan varies from person to person, depending on the lender. Some lenders may give the option to borrow more money or have better rates than others based on the financial history of the person looking to borrow. That being said, personal loans tend to be from around £500 to £25,000.
When applying for a personal loan it is important not to borrow more money than you need or borrow more money than you will be able to pay back. Late or missed payments can incur further charges or fees and the lender has the right to recover the money if repayments aren’t met.
How to know if a secured or unsecured loan is right for you?
When looking at a secured loan vs an unsecured loan, there are several things to take into account.
If you’re looking to borrow from £500 to £35,000 then an unsecured loan could be an option for you. With an unsecured loan, you don’t need to secure the loan against an asset, like your home. The lender will simply lend you the money, and you’ll repay it in regular monthly instalments, plus interest. For this reason, unsecured loans are quicker to set up than secured loans and you could have the money in your account the same day.
The rate you are offered for an unsecured loan will depend on your credit score and individual circumstances. You can use an unsecured loan for any legal purpose, such as consolidating your debts, making home improvements, buying a new car or spreading the cost of a holiday or wedding. Unsecured loan repayment terms range from 1 to 7 years.
To be eligible for a secured loan (or homeowner loan), you need to be a homeowner. This is because the loan will be secured against your property, meaning the lender can take your property to recover their costs if you can’t repay what you owe.
Secured loans are used to borrow larger sums of money than unsecured loans, with loan sizes ranging from £5,000 to £500,000+. This is why the lender requires the loan to be secured against an asset. With a secured loan loan, you can receive advice from a qualified adviser on which loan option is before for you and your circumstances, as well as benefit from much longer repayment terms, ranging from 1 to 30 years.
The most common uses of a secured loan are to consolidate debts or make home improvements, however they can be used for any legal purpose. Although your credit score does impact the rate you’re offered for a secured loan, there are also other factors involved such as the amount of equity you have in your home.
Choosing the Right Loan for You
Which type of loan is right for you will ultimately come down to what’s best for you and your circumstances. You may prefer to opt for your lowest rate loan offer knowing it is the cheapest option. However, you may want to lower your monthly repayments by spreading your costs out over a longer period of time. Although this means you’ll pay back more overall, it could make your day-to-day costs more manageable. Finally, you may simply decide to go for the loan option that you’re most eligible for to reduce the chance of having a credit rejection recorded on your credit file. Whatever you choose, just make sure it is the right decision for you.
Before agreeing a loan, it is absolutely vital to make sure that the secured or unsecured loan you go for is right for you. If you would like independent advice, it is possible to contact Money Helper. Money Helper is an independent service that offers free, impartial advice. Call 0300 500 5000 or visit the Money Helper website.
What is an unsecured loan?
What is an unsecured loan?
The Definition of an Unsecured Loan
An unsecured loan is quite straightforward. You borrow money from a lender over a set time period in which you agree to pay back the loan. An unsecured loan is not secured against an asset but failure to make payments on time can can incur additional charges or consequences such as affecting your credit score.
What are unsecured loans for?
Typically speaking, unsecured loans are used to pay for smaller expenses compared to secured loans, these could be things such as car repairs but they can be used for home improvements, a car purchase or debt consolidation. Being smaller value loans, unsecured loans tend to have a shorter repayment terms than secured loans. There can be flexibility and you can pay over various terms of up to around 7 years. Unsecured loans can have a simpler application process than secured loans as they are not secured against an asset It is important to note with unsecured loans, if you don’t make payments, it is possible that additional charges could be applied to the loan. This will show on your credit record. Likewise, in the event that an unsecured loan is not able to be paid back, the lender may still take action to get their money back..
What is a secured loan?
The Definition of a Secured Loan
A secured loan means that you can borrow money secured against an asset that you own. Secured loans are taken out over a fixed period of time, in which you agree to pay back the loan. Failing to do so, or defaulting on the loan, may result in the sale of the asset in order to recoup any losses
What are secured loans for?
Secured loans are used to borrow large sums of money against something you own, using it as collateral. They are often used for major expenses, such as large-scale house improvements or debt consolidation, and can be taken out over a long period of time. If a secured loan is taken out against your property, you are agreeing that, in the case that you can’t pay off the loan, you may need to sell your house to make the payment. Likewise, if you used your car as an asset, it may be repossessed if you don’t keep up your repayments. Lenders may see secured loans as lower risk because they know they can collect the money you owe from your assets if you don’t make the repayments. Because of this security, secured loans may come with better interest rates and longer repayment terms. This can mean lower monthly repayments compared to an unsecured loan. As with all borrowing, you should consider the total amount you will need to repay overall when considering a product. The amount you are able to borrow and the rate that you are quoted by the lender will depend on your circumstances as with all loans, but with a secured loan, the amount of equity you have in your property will also affect this. If you are a homeowner but your credit history is not perfect, you might find that you are offered secured loans.
I have taken out a secured loan, but I’m moving – will this be a problem?
Not necessarily. There are a few options with a secured loan when moving house.
- The first option is to see if you have enough money from the house sale to repay the debt in total.
- The second option is to transfer the loan to the next house you’re moving to. It’s important to note that not all lenders will allow it.
How long will it take to process a secured loan?
Applicants can complete the secured loan process fairly quickly if you can provide all the information efficiently and accurately.
After you’ve made your secured loan application, you’ll normally receive a quotation that requires both validation and confirmation by your lender. If you decide to take the next step, then your lender will assess your credit report.
If the loan you want is secured against your property, then the lender will want to know its value. In essence, they need reassurance that the amount of equity (another word for ‘worth’ or ‘value’) you have in your home covers the amount of the loan.
With the secured loan process, you may also need to supply banking details and other financial information. This process varies from lender to lender but can take several weeks. You can always ask for an estimated time at the point you decide to proceed.
Can I get a loan if I have a low credit score?
This isn’t really a yes or no question. It depends on a number of things, not least the lender.
Lenders can consider you more of a risk if you have a lower credit score, so it might mean that you’re quoted a higher APR%, or the lender could turn you down.
But don’t despair. Just because one lender turns you down doesn’t mean that another lender will.
But before you check your eligibility with another lender, the first step is to check your credit report for inaccuracies and amend anything you can.
What gives you a bad credit score?
The main thing that can give you a bad credit score is when your credit report shows you’ve missed or made late repayments on loans and credit cards. Your credit score could also be low if you’ve only ever made the minimum repayments on your credit card.
But a low credit score can come down to several other things too. Things that don’t even seem like anything to do with your finances.
What can give you a bad credit score? Democracy!
For instance, a very common reason might be if your name’s not on the Electoral Register. Because lenders favour people with registration at an address for a few years. This is something you can sort out by registering to vote. Additionally:
- Did you ever file for bankruptcy against your name?
- Were you subject to a County Court Judgement?
If so, that’s what gives you a bad credit score as well.
What are the differences between Secured and Unsecured loans?
The main differences between secured and unsecured loans include:
A secured loan requires an asset to secure the loan against —usually this is your property in order to get a secured loan
- They tend to be for larger amounts.
- Tend to be over a longer period of time.
- Can result in lower interest rates.
Do not secure the loan against your assets.
- Typically these are for smaller amounts ranging from £1,000 – £25,000
- Tend to be for a shorter period of time.
- Interest rates may be higher than a secured loan
To find out more about the difference loan types, read our guide, What is a secured loan?
Can I be turned down for a loan?
Yes, any lender can turn you down for a loan. When you check you eligibility for a loan, it’s up to the lender to decide whether they can lend to you (it’s their money, after all).
It’s important to know that each lender looks at your credit report to decide whether the loan or credit is affordable.
This information, along with each lender’s own set of conditions, helps them work out if they can give you a loan or credit.
Each lender calculates the credit score differently. For example, a person may get turned down because their credit history is limited, or their credit profile shows they’ve had trouble repaying debts in the past, or their file shows a number of ‘search footprints’ from previously applying for loans.
In the view of a lender, all of these examples can make it riskier to lend to a person, which is why they might be turned down.
What is a guarantor loan?
A guarantor loan is a type of unsecured loan where someone else, usually a friend or family member, agrees to pay the loan if you can’t afford to make the repayments.
Your friend or family member will have to co-sign the credit agreement in order for the guarantor loan to be accepted. This means that if you fall behind with repayments, the lender can ask the guarantor to make the repayments instead.
How it works is a guarantor loan is initially paid into yours or the guarantor’s bank account, then you will need to make each repayment directly to the lender.
If you’re turned down for an unsecured loan because of a low credit score, a guarantor loan is an option you could take.
However, you must be confident that you can repay the loan back, because if you struggle to make repayments it would have serious financial consequences for your friends and family members.
Can I pay off a loan early?
Can you pay off a loan early? Yes, but mainly if you can afford to. The benefit of this is that it can help save you money in interest repayments in the long run.
However, what might come as a surprise is that paying off a loan earlier than expected may mean you have to pay an early repayment charge (or something similar).
How much this charge is, and how it works varies from lender to lender, but you might find it’s approximately the equivalent to one or two months’ loan interest. So it’s definitely best to check with the individual loan company before you pay off the loan entirely.
Is there a maximum age on taking out a loan?
Not really. Well, correction: when it comes to the maximum age for taking out a loan, there’s no official maximum age limit. You do, however, always need to be over 18 years old. Each lender has their own set of criteria which have different upper and lower age limits, so it’s worth shopping around to find one that suits you.
The fact is, what most lenders will look at is your credit report. That is why it is important to check it yourself and report any inaccuracies.
How quickly will I get my loan money?
The time it takes to receive the money for an unsecured loan is different from lender to lender.
That’s because each lender is different when it comes to looking at your loan or credit application and making their decision.
If you’ve applied for a secured loan that’s tied to your house, the process can take a little longer – typically four to five weeks.
A secured lender also needs to get information from your mortgage company to value the property. Your lender will also need proof of your identity and your income before agreeing to go ahead with the loan.
What does APR % mean?
This stands for Annual Percentage Rate – which is the cost of borrowing money over the course of a year. Having it as a percentage figure allows people to compare the cost they’ll face when taking out a loan or credit card. It is important to note that an APR is different from an APRC.
Lenders also use something called ‘Representative APR’. This is the APR that 51% or more of successful applicants will get. But that rate may not be available to the other 49% of applicants, who are likely to be offered a higher rate.
This is why it’s so important to pay attention to the APR% when checking your eligibility, as it gives you a good idea of just how much you will be paying each year for borrowing money from lenders. For more advice, take a look at our article on explaining Annual Percentage Rates. You might also like to know how your APR is decided or what is Representative APR %?
What can I use a loan for?
With some loans, it’s your choice how you use it. But other loans, such as a car loan or a debt consolidation loan, they’re more clearly intended for a specific purpose.
The amount you can borrow on a secured loan is usually much larger than an unsecured loan. Popular ways to spend a secured loan include large-scale home improvements, legal purposes, and debt consolidation.
Unsecured loans, on the other hand, have a much smaller loan limit and are better suited to smaller value purchases such as essential home improvements and vital car repairs.
What is Representative APR %?
Typical APR % (Annual Percentage Rate) is used by lenders so you can easily compare rates when you check your eligibility for a loan. Lenders use the term to describe the amount of interest you’ll pay annually on money you want to borrow. Typical APR %must reflect at least 66% of secured loan business expected to result from advertising the rate. For more advice and guides, including what APRC is, take a look at our other Mortgage FAQs.
What are redemption fees and why do lenders charge them?
Redemption fees is another term for early repayment charges. It’s the charge you pay if you choose to repay your loan earlier than the original final repayment date.
Lenders do this to try and get back some of the money they’ll lose out in interest repayments if you repay your loan early. A typical penalty amount is about the equivalent of one or two months’ loan interest.
So, if you are considering repaying your loan back early, it’s definitely best to work out whether it’s worth paying the loan back earlier or not.
Also, not all loans have an early repayment charge or lender redemption fees. So always check with your lender first.
How long does it take to apply for a loan?
This is sort of a ‘how long is a piece of string?’ question.
It all depends on the lender. An application can take anything from a few minutes or a day, to several weeks.
Where they differ is the process after the application. For instance, a small personal unsecured loan is likely to be faster than a mortgage for £200,000, as additional documentation is required.
So the piece of string really depends on your situation, the lender you choose, the forms to complete, and how quickly you can return the forms.
We know that finance can be pretty confusing. Which is why we want to give you the clearest, jargon-free guidance to help you find the best loan for you – without the Baffles.