Information About 125% Secured Loans

In your quest to find financing, you may come across a 125% secured loan, which will have you wondering just how it works. How can you secure something for 25% more than what it is worth? No one is going to secure a loan for more than was initially borrowed, surely? There is the clinch. You are borrowing 25% more than the cost of the item. You end up getting cash back in your pocket.

What happens in this type of partially secured loan is you take out two loans that are linked together. The first loan is secured with the full price of the item you are buying. The second loan is not secured at all. The second loan amount is the money you will be putting in your pocket.

The second loan usually has a higher interest rate than the first, secured loan. The two loans are bundled together with only one arrangement, but you will be paying on both at the same time. You can’t default on the unsecured part without defaulting on the secured portion.

If you are wondering how you can get a 125% secured loan, be warned that they are not easy to come by.

In the UK there are different regulations for secured and unsecured loans. Secured loans are protected by the Financial Services Authority, a regulatory body that does not cover unsecured loans. Many lenders will not take the risks associated with 125% unsecured loans. Those that do end up with high administration costs.

If you do your research and look around however, you can find lenders that will approve these loans. You may find yourself in a situation where this type of loan would be handy. Buying a house that needs renovations would be a good reason for getting a loan like this. The lender may be more apt to approve it if you can show him where the house would be worth more in the long run with the renovations, so there would not be as much of a risk for them.

Keep in mind that you will be paying a lot more for this loan. Make sure you will be able to afford the monthly payments. If you are able to find a lender that will consider this type of loan be ready to complete a lot more paperwork.