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Secured Loan vs. Remortgage: The Pros and Cons

To understand a subject on secured loans versus remortgage options you need to know what the differences are in the options.  A secured loan is a loan that is backed by some form of collateral like a piece of property, which can also be said of the remortgage.  The differences come in how to obtain the loan and the quickness with which you can obtain the loan or mortgage.  Below we have looked at the pros and cons of each option to help you determine what might be best for you and your family.

Secured Loans

  • Secured loans offer closing within 21 days from most lenders. For many borrowers the speed at which the loan is granted is an important factor.
  • The repayment period can be more varied than a remortgage in which you have up to 40 years to pay the debt.
  • Consider the case when a borrower's credit rating and personal circumstances have deteriorated since taking out the first mortgage. Then it would be far cheaper and efficient to leave the existing loan as is and raise the extra funds that are needed by way of a second charge or secured loan.
  • Secured loans also tend to be rewarded to even those with credit problems; although the interest will be a little higher for poor credit history.
  • The cost of secured loans may be a little less in the arrangement fees, legal fees, and administration fees.
  • Typically by name the secured loans will have higher interests than some remortgages due to the type of lender.  This rate is considered a non- conforming rate because the lender doesn’t have to go by the base rate of the Bank of England, and remortgages do.
  • Secured loans can be cashback loans in which you have an immediate and extra 2 percent payout awarded that is not paid back.
  • Secured loans will have closing fees associated with the loan and these are usually not incorporated into the loan.  However, there is usually not a prepayment penalty for paying the loan off early.

Remortgages

  • Remortgages have higher interest rates for individuals with credit arrears.  The rate must be conforming to the Bank of England which can sometimes make the interest rate less, but not always.
  • Remortgages will have high valuation, administration fees, lender arrangement fees, and legal fees.  There are can also be broker fees.
  • Remortgages can sometimes come with pay-off penalties, which the secured loans don’t have.
  • Remortgages can be more difficult to obtain if you have had credit issues in the past. The lender has to finance a larger sum of money and this is harder the current market conditions.
  • It will take at least 4 weeks for a remortgage to go through and often much longer.
  • Remortgages may also require closing costs to be paid by the consumer upfront rather than being rolled in the loan, but this is not always the case.

There are definitely benefits to remortgages as well as secured loans.  It will depend on you as the consumer to decide what is more important to you at the time.  Speed to close on the loan can be of the utmost importance to some facing the adjustable rate mortgages with interest rates reaching 9 or 10 percent.  You might not have the time to wait on a remortgage with a lower rate, whereas the secured loan can be obtained quicker.  There are also no penalties associated with secured loans which can make them more attractive.


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