Should I Take Out A Secured Loan Or Remortgage?

Both secured loans and remortgages have their positives and negatives and it will depend on your circumstances which one is better for you to do. 

A secured loan is often an effective way to borrow money quickly. It allows you to borrow a large sum that is secured against a valuable asset of yours. 

However, many people will look to remortgage their property instead of taking out a secured loan because of the lower interest rates available on remortgages. 

This guide takes you through what a secured loan is, what a remortgage is and when you might look to take out a secured loan instead of remortgaging your property. 

What is a secured loan?

A secured loan is a loan where your lender will take legal charge over an asset of yours (a property, a car etc..) in order to protect the money that they lend you. 

If you were to default on your loan payments, then this asset could be repossessed by your lender. 

Whether for your business or your personal life, a secured loan can sometimes be a great way to get the money you need quickly.

They are commonly added on top of your first charge mortgage and can sometimes be referred to as second charge mortgages. 

The rates on secured loans tend to be slightly higher than first charges because of the increased risk to the lender. 

If you were to default on a second charge loan then the first charge lender would get the equity of the house owed and the second charge would be left with the rest.

A secured loan with the same lender as your first charge mortgage may offer better rates but not always and that is why it is worth considering other options apart from a secured loan such as a remortgage.

What is a Remortgage?

Remortgaging is when you take out a new mortgage on a property that you already own. 

This can either be to replace your existing mortgage, or to borrow more money against your property. 

Remortgaging is extremely common because many homeowners will look to take advantage of the low interest rates offered by remortgaging as there are protections against the rate of the loan rising.

What is the difference between a secured loan and a remortgage?

When you remortgage, you are replacing your existing mortgage with a new one. There are several times when homeowners may want to look into remortgaging. 

For example, if their introductory mortgage offer has ended, or if they have seen that there is a better mortgage deal with better rates and more flexible terms. 

Homeowners may also remortgage if they need to borrow extra money against their property.

It may be hard, however, if you are self-employed or if you have bad credit to get a mortgage. 

This is different to a secured loan as with a secured loan you are borrowing additional funds on top of your existing mortgage, you are not replacing your existing mortgage. 

You may want to take out a secured loan if you are looking to consolidate your debts or you are in need of cash for some home improvements. 

Secured loans offer a higher interest rate than remortgages. Secured loans, from the lenders point of view, involve more risk.

However, you may end up paying more interest overall if you were to remortgage your property, because the payments could be spread over a longer period of time. 

It will take much longer to pay off your mortgage then it would a secured loan. 

It is important to understand that in both cases you are borrowing against your own assets (i.e. your house) and therefore if you do not make your repayments on time then your asset could be repossessed. 

When is a secured loan better than remortgaging?

There are a few times when it may be wiser to get a secured loan than to remortgage your property. 

These include:

You need cash fast

Although it cannot be guaranteed that a secured loan will come into your account quickly, a secured loan will be much quicker than getting a mortgage. 

Therefore if you are in need of cash fast then the secured loan would be the better way to go.

You have a bad credit score

It may be much easier for you to get a secured loan to get a remortgage if you have a bad credit score. 

If your credit score has decreased since you got your first mortgage, then it might be hard for you to find a remortgage without crazy interest rates. 

Moreover, there are some lenders who specialise in bad credit secured loans which could help you secure the money you need. 

There are early repayment charges on your mortgage

Some mortgage lenders will charge their customers to make early repayments on their mortgage, so that they cannot leave the contract too quickly. 

If this is the case, then it may end up becoming more expensive to end your first mortgage and remortgage then it would be to get a secured loan. 

Your circumstances have changed 

If it was much easier for you to get a mortgage when you first had to apply, because you had a full-time job or you had a better credit score, then it may be easier and faster to get a secured loan. 

For example, if you are now self-employed, then it may be easier to get a secured loan without having to prove your income for the past few years to a mortgage lender. 

You cannot borrow as much as you would like to 

Some mortgage lenders will not allow you to borrow more or as much as you would like when you are taking out a remortgage. 

Therefore if you are wanting to borrow a bit more, then it may be worth looking at a secured loan instead.

What to consider before taking out a secured loan

There are a few things that it is important to consider before you take out a secured loan. These things are:

• How long you need to borrow for
• How much you need to borrow
• Making sure that you can afford monthly repayments so that your asset is not repossessed. 
• Comparing your secured loan to other types of loans such as mortgages or bridging loans. 
• Check if you can improve your credit score before you apply for loan, there are many simple ways to do this including cancelling some credit cards
• Do not make too many applications at once as lenders will be more worried about lending to you.
• Use Proper Finance’s form to find out immediately how much you could borrow and how quickly you could receive it.