You will need to provide documents in order to apply for a secured loan. These are usually:
- Passport or ID
- Valuation of property
- Valuation of vehicle
- Proof that you own the property or vehicle
Making sure that you have done a secured loan application checklist before applying is highly recommended to ensure you meet the eligibility criteria and not wasted valuable time.
In this guide, we will explain a bit more about the documents needed for a secured loan so that you are fully aware of how the application process works.
What is a secured loan?
To clarify, secured loans involve borrowing money against a high-value asset. In most cases this will be your home, but sometimes it is your vehicle.
Secured loans are also commonly known as homeowner loans, first and second-charge mortgages or some types of debt consolidation loans.
With this kind of loan, people borrow cash using this high-valued item as ‘security’ (also referred to as collateral).
Taking out a secured loan requires careful consideration beforehand as if you are unable to keep up with repayments there are high levels of risk involved.
This is because the lender has the legal right to repossess your home or vehicle (that you have put up as security) if you do not make repayments on your loan.
How does a secured loan work?
In much the same way as other loans, you will make repayments per month to pay back the loan as well as interest. Typically, interest rates tend to be lower on secured loan products than with other kinds of loans, which is why they are popular.
Interest rates tend to be lower as the risk of lending to the borrower is mitigated thanks to the asset that is put up as security against the loan. More or less, the lender knows that whatever happens they will be able to recuperate most if not all, the money back due to this collateral asset.
Generally speaking, secured loans are used to borrow higher amounts of money. The starting amount tends to be at least £20,000, however, it can be possible to borrow as little as £3,000.
Documents needed to apply for a secured loan
Passport or ID
The lender must be able to confirm your identity before being able to go ahead with any aspect of the application process. As a result, the first step when it comes to the secured loan application is to provide your passport or ID.
Property or vehicle valuation
Make sure that you have an up-to-date, accurate valuation on your home or vehicle before applying for this type of loan.
The lender will require documents that show the most recent valuation of your assets that you would like to put forward as security on the loan.
Proof of ownership
In addition, the secured lender will likely want to see evidence that you are the homeowner or car owner when assessing your application. Make sure you have these documents handy when you are filling in your application online.
Proof of income
The lender will also be looking for confirmation that you are in a financially stable enough position to make repayments on a loan.
This means the lender is likely to ask you for proof of income, which does not always necessarily mean you need to be employed – it is possible to be retired and still apply.
For example, showing the amount of equity you have available in your property could be considered as income.
Will a secured loan require a credit check?
Yes, in most cases the lender will check your credit file with one of the three main credit reference agencies to determine your eligibility. It is also to see your existing credit commitments, and how well you have managed to repay other forms of credit up until now.
The credit check is also likely to determine the interest rate you pay, though the rate is still likely to be lower than you would get with an unsecured loan.
It is also worth remembering that credit checks tend to have less impact than other kinds of loans in deciding your approval. This is because of the high-value asset you would be putting as security for the loan.
Can I get a secured loan if I have poor credit?
Yes, it possible providing you have an asset that is of high enough value to use as collateral for the loan. As previously mentioned, credit checks do not carry as much weight when it comes to loan application outcomes for secured loans, because of the asset acting as collateral should you end up not paying.
Things to consider before taking out a secured loan
Before you apply for a loan, such as a secured loan, there are some important things to think about.
For example, be honest with yourself and think about the likelihood of you ending up defaulting on repayments at a later point. If you think it could be possible, consider looking at other options such as a guarantor loan, where the consequences of failing to repay may be less severe.
However, make sure that the nominated individual to back your loan is fully aware of the responsibilities of a guarantor beforehand.
You should also consider how affordable the secured loan repayments are, and whether you are in a stable enough financial position to take out a loan of this kind.
