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Secured loan, equity, mortgage, get them working for you!
October 16, 2017●
3 minute read●
Wondering what a secured loan is?
A secured loan is a loan where the lender can use an asset as collateral. This situation only occurs if the borrower cannot meet the repayment requirements. The borrower will put an asset, typically a vehicle, against their loan to help increase their borrowing power. This means the lender then has the right to sell the asset to regain the amount of the loan. It’s important to note that selling the asset is typically the last resort. Responsible lenders will work with you to try to create a payment schedule that works as a priority.
Interest rates are more often than not cheaper than unsecured loans. This is because the lender holds the right to recoup costs or the asset if the repayment terms are not met. This minimises risk to the lender.
Unsecured loans are exactly what they sound like; they are not secured to an asset. They are assessed and approved or denied based upon a borrowers creditworthiness rather than an asset. They are also known as personal loans.
What is a property equity loan?
If you own your home and have built up some equity in your house you can use that equity as security for a new loan.
An equity loan works much the same as other secured loans. The lender will assess your application, mortgage and equity and decide if you can afford to repay the loan or not.
What is your equity?
The equity in your home is the difference between the value of your home and the debt or mortgage owed against it.
If your home is worth $700,000 and you only owe $400,000 on your mortgage then you would have $300,000 in equity.
Most banks, however, won’t let you borrow 100% of your home’s value. Make sure you take this into consideration when deciding how much of your equity you would like to borrow. You may have $300,000 in equity but lenders will vary as to how much of that equity they will lend to you.
Does my loan need to come from the same bank as my mortgage?
You don’t necessarily need to choose the same bank or lender as your mortgage. It is an easier option though. If you think you have bad credit, this doesn’t automatically disqualify you for a loan. Jacaranda Finance may still be able to offer loans to people with poor credit. You can apply simply by scrolling up and using the online form.
You should, though, look into your bank as your first option. They will have a picture of your lending history already and it will help you avoid having to provide mortgage documents etc.
Of course, your bank also has a vested interest in keeping your business. They hold the mortgage and you will be required to provide details of your mortgage to other lenders to have your secured loan approved.
Jacaranda can also help you pay off your mortgage faster!
What is a line of credit loan?
A line of credit loan or LOC is a loan directly connected to your home loan that you can draw from continuously and at any time. This is usually at the same interest rate as your home loan.
Lines of Credit are becoming more popular among borrowers. They offer great flexibility as to how and when they use the money from their loan.
The loan is still secured against your home so if you fail to make repayments then you may run the risk of having your home repossessed.
However you are not restricted greatly as to how you spend your loan, you can purchase large or small items at your discretion.
Another positive of the line of credit loan is it is secured to an appreciating asset. This means you will usually be able to negotiate a pretty competitive interest rate which would probably not be available from an unsecured loan.
However, this is a secured loan that can offer you many benefits. Things you should consider before applying for a secured loan or a line of credit loan:
- Do I need this loan?
- What do I want this loan for?
- Can I afford the repayments?
- Am I financially stable enough for this loan?
If you can’t answer these questions confidently then maybe you should consult with a financial advisor before going ahead with any loans.
Jacaranda Finance follow practices of responsible lending. This means we will conduct a credit check, however, we look beyond just that. We like to get a full overview of your current financial standing.
If you’re ready to make an application, simply scroll up and use our handy online calculator.
Written by Jacaranda Team