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Getting a Secured Loan – the Secured Loan Application Process Explained.

A secured loan (also known as a homeowner loan, or second charge loan) is a loan that is secured against your property. Secured loans are flexible products that can be used for a variety of purposes:

  • To fund home improvements projects such as renovations, extensions, loft conversions or paying for new kitchens and bathrooms. As well as making your home more comfortable, completing home improvements can also add value to your property and make it more attractive to potential buyers, should you choose to move in the future.
  • To consolidate debt by paying off unmanageable or high interest credit cards and loans. This can reduce your liabilities and your outgoings, simplifying your finances and leaving you with more money at the end of each month.
  • To pay for a special event like a wedding or once in a lifetime holiday.
  • To pay off tax bills, or gift money to loved ones to help them get onto the housing ladder.
  • For any combination of the above.

A secured loan is a great alternative to a mortgage – especially in today’s financial climate. With recent increases to mortgage rates, it might not be a good idea to remortgage if you currently have a good rate or are fixed into a deal.

A secured loan allows you to get the money you need while keeping your mortgage in place.

The benefits of a secured loan are available to everyone. It’s not just a “bad credit” product – although someone with bad credit can still qualify for a secured loan.

Using one to clear up problem debt or adverse credit such as defaults and County Court Judgements (CCJs) could help to repair your credit profile.

In this blog, we’ll look at the process of getting a secured loan – what to expect, how to prepare, and what will happen at each stage of the application.

When looking for a secured loan, you should always speak to a qualified and authorised adviser. All of our advisers at Dragon Finance are fully qualified and authorised by the Financial Conduct Authority.

Let’s look at the steps involved in getting a secured loan.

1. Arrange an appointment;

You can arrange an appointment with one of our advisers by using the contact us page on our website or by calling our office here. We’ll take a few basic details and then arrange a time that best suits you to complete the fact find (Step 2).

All of our applications are done over the phone, so you can complete your application from the comfort of your own home or wherever else suits you.

The initial part of the application – known as the fact find – takes between 30 – 45 minutes.

In some cases, it might take a little more time, depending on the reasons for the loan.

For example, if you want a secured loan for debt consolidation, or if you have adverse credit, then we’ll need to go into things in a little more detail (it’s nothing to worry about and we’ll explain why we need to do this below).

There are a few things you can do before your appointment which can make your application run even more smoothly.

Work out your income and expenditure

Have an idea of your monthly income and expenditure – the money you have coming in each month (wages, overtime, benefits, child support, etc.) and the money going out (groceries, bills, subscriptions, etc.)

The adviser needs this information so they can understand your situation, provide the best advice, and find you a suitable product. The lender will also need to know this, so they can assess the affordability of the loan.

Check the value of your home

The value of your property plays an important part in getting a secured loan.

Along with other factors, such as your credit profile, the loan to value (LTV) determines the types of product and interest rate you qualify for.

The LTV is the amount you are borrowing compared to the value of your home (minus any existing mortgage or secured loan balances), expressed as a percentage.

For example, if your home is worth £200,000, you have an existing mortgage of £120,000, and you want to borrow £40,000 with a secured loan, the LTV would be 80% (£120,000 + £40,000 = £160,000 – which is 80% of the property’s value).

Lenders will go up to a maximum of 95% LTV in most cases when offering a secured loan.

Having an up-to-date valuation can help to manage expectations and avoid potential disappointment.

You don’t have to book a valuation with an estate agent – you might have had a recent valuation when you remortgaged.

If not, you can get a good idea of your home’s current value by checking valuation sites such as Zoopla or Rightmove.

Think about any outstanding debt you want to consolidate

If you want a secured loan for debt consolidation, think about the credit cards, loans, or store cards that you want to consolidate and have an idea of the current balances and how much you are paying each month.

Just like understanding your household budget, this will help the adviser understand your circumstances and give you the right advice.

The lender will also need up to date balances, as many lenders pay off your creditors directly when providing a secured loan for debt consolidation.

What if I don’t have all of this information?

Don’t worry if you can’t find all of this information, or if you’re unsure of certain things, like how long you want the loan, or an exact monthly payment you can afford. Our advisers will guide you through the process and help you discover what’s important to you.

If you’re having trouble in finding your debt balances, our case managers will help if there is any more information the lender needs (we’ll go into more detail about what our case managers do below.)

2. The fact find;

When you speak to the adviser, they will take you through what is known as the fact find.

The fact find is a series of questions to gather information about you, your circumstances, your aims and your preferences. The fact find is the most important part of the application as the information the adviser gathers here is the foundation for their advice.

The adviser will ask you questions about:

  • Your details.
  • Your property.
  • Your employment.
  • Your income and expenditure.
  • Your current debts and any adverse credit you might have.
  • Your preferences for the loan – the monthly payment, the term, and whether you want to make overpayments.
  • Your attitude to risk – whether you want to fix the interest rate for stability, or would be happy with a variable rate product.

The adviser will also gather information about your overall objectives and goals, as they relate to the loan and your overall financial wellbeing.

If you are borrowing for debt consolidation, or if you have any adverse credit (such as defaults or County Court Judgements), the adviser will want to know some additional details, such as how the debt built up, why the adverse happened, and what impact the debt is having on your life.

If this applies to you, don’t worry about these questions – the adviser isn’t trying to catch you out. The build-up of debt or adverse credit is often triggered by a significant life event, such as a redundancy, relationship breakdown or a bereavement.

It’s important that the details surrounding such events are captured, as it helps the adviser understand what happened and allows them to explain things to the lender.

During this stage, the adviser will also complete the relevant credit searches. At Dragon Finance, we always carry out soft credit searches, so they won’t mark your credit file. If you want to check your own credit file, you can do so here.

3. Underwriting;

After the fact find, the adviser will arrange a time to call you back, and will then look for your loan. This stage of the process is called the underwriting or sourcing.

The adviser will assess your circumstances and the information they have gathered during the application, and use a variety of tools to find a suitable product. They will consider things like the affordability, any adverse credit, and also any product features that you wanted, such the ability to make overpayments to the loan.

As Dragon Finance is a whole of market broker, the adviser will look for a loan from a wide range of lenders, using their knowledge and experience of the market and checking your application against the lenders’ criteria.

Each lender will do their own affordability assessment. They will look at what you can afford now, but also do some calculations to see if you could afford the loan if interest rates were to rise – this is called a stress test.

Lenders will also look at your expenditure. Most lenders use guidelines from the Office of National Statistics (ONS) when it comes assessing things like grocery spending, petrol, and other bills and these figures may differ from what you are actually spending.

When they have found a suitable product, the adviser will get a Decision in Principle from the lender.

A Decision in Principle acknowledges that the lender will lend to you, pending any further assessment, such as the valuation, credit and affordability checks, or receipt of paperwork.

A Decision in Principle isn’t legally binding and the amount the lender is prepared to offer might change once the full application has been completed.

Once they have a Decision in Principle, the adviser will contact you again to give you their recommendation.

4. Recommendation;

The recommendation is where the adviser talks you through the details of the loan, such as:

  • The amount borrowed.
  • The term.
  • The monthly payment.
  • The interest rate.
  • The total amount repayable over the whole term of the loan.
  • The name of the lender.
  • The product features (fixed or variable, whether you can make overpayments or lump sum payments).
  • Any early repayment charges.

The adviser will also explain why their advice and the loan is suitable for you, based on your circumstances and your goals as gathered during the fact find.

The adviser will check that you are happy with the recommendation and will answer any questions you might have.

Sometimes the recommendation might not be exactly what you wanted or expected. There can be a variety of reasons this:

  • The adviser might have recommended that you consolidate some further items of credit, in order to make the loan affordable for you.
  • The rate might be higher than you expected, perhaps due to your credit profile.
  • The adviser might have had to increase the term of the loan to reach your monthly payment target.

Ultimately, any recommendation the adviser makes is given with your best interests in mind, with the aim of giving you suitable advice.

If you are happy with the loan, the adviser will send out the application pack for you to complete.

5. Documentation;

As part of the application, you will be asked to send in documentation for the lenders. The documents required will vary from lender to lender, but in general, they will need to documents such as:

  • Proof of identity.
  • Proof of address.
  • Proof of income.

There may also be some specific documents that the lender requires, depending on your circumstances.

6. Processing;

Once your paperwork has been received, one of experienced case managers will oversee your application.

The case manager will be your point of contact, and support you during the application. They will liaise with the lender, working to move your application through to offer and completion.

This often involves gathering documentation, and requesting additional information needed by the lender. This could be quotes from builders if the loan is for a home improvement project, or the latest redemption figures from credit card or personal loan providers if the loan is for debt consolidation.

Whatever happens, your case manager will work with you and the lender to make sure your application proceeds as quickly and as smoothly as possible.

During the processing stage, the lender will carry out a formal valuation of your property, to make sure it is a suitable security for the loan. They will carry out the valuation in one of three ways:

  • Automatic Valuation Model (AVM) – this uses mathematical formulas to calculate the value of your property, based on data about existing properties and recent sales.
  • Desktop valuation – as the name suggests, this is done without having to visit the property, and uses publicly available information from online sources, such as the Land Registry and property databases.
  • Full valuation – this is where the surveyor visits the property to look around, check for any damage that might affect the value, before making a valuation

What happens if the value comes in higher or lower than expected?

A valuation that is lower than expected is known as a “down valuation”.

A down valuation can mean that your loan moves into a higher LTV bracket (because you are now effectively borrowing a higher percentage of your home’s value) and this will generally affect the interest rate.

If the valuation comes in higher, firstly, that’s good news, because your property is worth more than you expected. Secondly, it might mean that you fall into a lower LTV bracket, and therefore qualify for a lower rate.

Whatever happens with the valuation, your case manager and adviser will work together to find you a suitable loan.

7. Offer;

Once all of the lender’s requirements have been satisfied, the lender will issue you with the binding offer.

You are not obliged to accept the offer, and you now have a 7 day reflection period.

This is a “cooling off” period, to give you time to look through all the details, consider the offer, and make sure you are happy with the loan before accepting.

The lender cannot contact you during the 7 day reflection period.

However, if you are happy with loan, you don’t have to wait until the end of the 7 day reflection period before contacting the lender – you can accept the loan before then.

If you are happy, all you have to do is sign and return the documents to the lender to accept the loan.

8. Completion;

Once you’ve returned the documents to the lender and accepted the loan, the money will be disbursed – this is the term used to describe how money is released from the lender to the borrower.

If the loan is for debt consolidation, the lender will pay your creditors directly.

If the loan is for home improvements, or some reason other than debt consolidation, the money will be paid directly into your bank account.

And that’s it – your loan has completed and you have your money!

In general, the whole process from fact find to completion, can take between 1 – 4 weeks, although this can vary on a case-by-case basis, depending on your individual circumstances.

9. Ongoing support;

As part of our commitment to ensuring great service and the best outcomes for our customers, we complete a periodic financial health check with everyone who takes a product with us.

This involves keeping in touch to evaluate your financial wellbeing and making sure that you still have the product that is most suitable for your circumstances.

We’ll be in touch when your product comes to an end, to see if there is anything else we can do to help you reach your financial goals.

Speak to us

At Dragon Finance, we’ve designed our secured loan process to be as smooth and streamlined as possible and deliver first-class service to every customer. You can see what some of our customers thought about our service here.

If you’re looking for a secured loan, or if you have any questions about the process, speak to one of our advisers today.

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