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Loans secured by property
What are loans secured by property?
The most common form of loans secured by property is a mortgage when you are buying a home. It doesn't matter if it's your first home, your second, third or fourth, or a property you are buying to rent out, you are nearly always likely to require a mortgage.
In the vast majority of cases, mortgages are secured on the property, so even though you are the titular owner the home belongs to the lender until you have paid off the full amount your have borrowed. This is not just the principal but includes interest and any application or other fees that have been agreed. If you don't pay for any reason, your property is likely to be repossessed by the lender and sold to recoup some money.
You may also be able to borrow against the equity in your home, the difference between its market value and how much the outstanding loan is, and that loan too would be secured by the property.
Why do people use loans secured by property?
Buying a home is usually the largest purchase anyone will make and due to the sums involved a lender will want to be assured that it will get its money back one way or another. Nobody goes into a mortgage not expecting to pay it off but financial problems can happen and lenders don't like to be exposed.
You may find that interest rates can be relatively low for loans secured by property, and you are also likely to get the option of many years, up to 25 or sometimes more, to pay off what you owe. Mortgages are tried and tested products in the financial markets and give people the opportunity to borrow large sums of money that might otherwise be unavailable to them.
What are the main features of loans secured by property?
Good interest rates and long repayment schedules are attractive features of loans secured by property. You can sometimes get mortgage options to have a payment holiday, pay in more than the agreed amount or take advantage of products such as free offset accounts or loans that have no application fees.
When you pay off your mortgage you will be in possession of a very valuable capital asset, one that may well have increased considerably in value over the years. You should always check the terms and conditions of a loan secured by property to ensure you are getting a good deal that is suitable for your personal circumstances.
What are the pros and cons of loans secured by property?
You are much more likely to get a large loan by using this type of product, a competitive interest rate and a good number of years to pay back the loan.
If you are unable to pay back the loan, even if you have been repaying for a long time, your home is at risk of repossession. Every lender will warn you of the consequences and because the loan is secured on the property a lender could sell it to get a return on the money it lent and you would be left having paid out many thousands of dollars with nothing to show in return.
Kate was one of RateCity's Personal Finance Commentators. She has been a journalist for more than a decade, most of which has been spent writing about money. Most recently, she was the Australian Financial Review's personal finance correspondent. She is passionate about personal finance and women's independence.
In the best-case scenario, an application for a bad credit personal loan can be made within minutes and then be approved within 24 hours.
A bad credit personal loan is ‘secured’ when the borrower offers up an asset (such as a car or jewellery) as collateral or security. The lender can then seize the asset if the borrower fails to repay the loan.
Some lenders are able to approve applications over the internet and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.
Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.
While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other information, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.
While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, with higher interest rates.
Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will guarantee the loan, taking on the financial responsibility if the borrower defaults.
Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application.
It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit, because there’s a higher likelihood that the personal loan will be repaid.
So a borrower with good credit is more likely to have a loan approved and to get that approval faster, while a borrower with bad credit is less likely to have a loan approved and to get that approval slower.
The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:
- The big four banks (ANZ, Commonwealth Bank, NAB and Westpac)
- Smaller banks (such as Bank of Queensland, Bendigo Bank and MyState)
- Mutual banks (such as Heritage Bank, Greater Bank and Newcastle Permanent)
- Credit unions (such as People’s Choice Credit Union, BCU and Community First Credit Union)
- Non-bank lenders (such as Pepper Money, Liberty and RACV)
- Peer-to-peer marketplaces (such as Harmoney, SocietyOne and RateSetter)
There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.
Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans – they also get loaned less money. Each lender has its own policies, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.
It may be much more difficult for a self-employed borrower to successfully apply for a personal loan if they also have bad credit. Many lenders already consider self-employed borrowers to be riskier than those in full time employment, so several self-employed personal loans require borrowers to have excellent credit.
If you’re a self-employed borrower with a bad credit history, there may still be personal loan options available to you, such as securing your personal loan against a vehicle of equity in a property, though your interest rates may be higher than those of other borrowers. Consider contacting a lender before applying to discuss your options.