We’ve all seen or heard about the economic changes that the country is going through at the moment. Lenders have stopped lending after a long period of virtually begging us to take out new credit products and people are far more wary about applying for credit in the first place. So, how has the economic climate affected secured loans, viewed as being one of the most risk free loan options that a lender can give out?
Well, the good news is that lenders will still give out secured loans despite the recession. These loans are still preferred by most lenders in many ways as the security that they bring with them makes your application that little bit less of a risk for them. You renege on your agreement, they have a right to a slice of the equity that you have in your home. You don’t renege, they will still get their money back in the repayments that you make.
At the moment a secured loan
- This makes secured loans a simple win-win deal for lenders. Chasing someone who has walked away from an unsecured loan deal can be time consuming and difficult and the lender cannot say, hand on heart, that they will recover their losses. With a secured loan, however, they do have guarantees that they can use to get their money back.
This win-win deal has seen secured loans historically given out with a lot lower rates of interest than loans with no security. So, is this still the case now? Well, it’s hard to give a definitive answer to that question at the moment – yes and no is really your best answer here. Whilst it is true that secured loans are still cheaper than unsecured products the difference between the rates on offer is not as marked as it once was. Even a few months ago you could see a big percentage difference between secured and unsecured rates, now you can’t.
will still be cheaper but many mainstream lenders will now have pegged their rates closer to those given to unsecured finance. This still makes them worth looking at as a more cost effective option but you are less likely right now to get the kind of bargain basement rate that you may have been given just a couple of years ago.
You’ll also generally find that lenders are, across the board, completely focused on only giving out credit to people they believe can pay it back. There are no wishy-washy cases at the moment – none of them can afford to make any more mistakes here and they need to start to think about making money and not losing it.
For this reason you may find that your application checks are more stringent and you may even be turned down by some lenders even if you can show that you can afford your repayments OK. This may simply be based on the fact that some other part of their checks on you didn’t go too well.
In some cases a lender may not turn you down even though you didn’t meet their criteria. But, they may hike up their interest rates. This is a typical move if an application shows that a consumer is a higher risk than the norm. To minimise their risk, lenders will simply charge more.
This kind of thing used to mainly happen in the unsecured loans area but it is happening more and more with secured lending as well. So, for example, if your credit record does not look extremely good then you may find that you will get approval for a loan but not at the advertised rate. This may be put up if your application check throws up a problem.
This doesn’t mean that you shouldn’t consider secured loans if you are looking for finance, either to buy something or to use for loan consolidation purposes. It simply means that you should be a little more careful what you apply for and that you shouldn’t expect things to be as easy as they were before we moved into the recession.