While many may not realise they are lending money using security, the most obvious form of this is a mortgage for a home. In summary, until your mortgage is paid off, your bank or building society will retain the deeds and dictate under what circumstances and how the house can be sold. But who really benefits from secured lending?
As margins become ever tighter in the financial sector, more and more companies are looking for some kind of security, or at the very least a financial buffer in your personal circumstances. The greater the degree of safety you can offer to the banks, the more chance of agreeing terms on your loan, overdraft, etc.
In many cases, the offer of security will be the point which actual swings the result in your favour, and allows you to obtain that additional finance.
Security can take many different forms, with the most common being your home, whether this be for a basic mortgage, re-mortgage or even against a loan to set up a new business. However, many banks will accept share investments as collateral, insurance policies, etc.
For many, secured lending is a useful option, although there are pros and cons to this form of finance :-
Pros
· In some instances, the offer of security can improve the terms of your loan, thereby saving you money in the long term.
· In many instances, secured lending is the only way in which finance can be raised. A vast number of people would not be able to raise substantial finance without some form of security.
· Very often banks are flexible on the security involved, and you may be able to change the assets used throughout the life of your loan.
· In difficult situations, the security involved could be encashed and used to pay off any outstanding finance, thereby offering you a degree of comfort in troubled times.
Cons
· Your asset (most often your home) may be at risk if you are not able to keep up with your payments.
· You will not always receive the full value of your security, if the bank need to liquidate it to cover unpaid debts.
· Depending upon the state of your finances, and the price received for a “fire sale” of your asset, there is a possibility that you may still have outstanding debts even after sale proceeds have been used.
As with any kind of debt and finance, there are many issues to consider and what may work for one customer, may not necessarily work for everyone. It is essential that you continue to monitor your own finances very carefully, and try to avert any unforeseen circumstances.
Lending with a Security
UK Loans
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