We’re all different – and so are our finances. This statement, though it may seem obvious, is an ethos that underpins our borrowing marketplace.
We have the broadest and deepest lending panel on the market, giving us the power to offer more customers finance solutions than anywhere else. But it’s not just about the numbers.
Product diversity allows us to present customers with the most accurate products for their needs. So, instead of simply offering up generic borrowing products to anyone who’s eligible, we can present customers with the best products for their situation.
Secured loans are key to this. This product delivers value in a number of ways that personal loans and credit cards can’t, making it an invaluable asset to any borrowing marketplace.
Secured loans in a nutshell
A secured loan is a product that’s only available to homeowners. This is because the loan is secured against the available equity in the property. This means that if the customer was to stop making their loan repayments, the lender could repossess the customer’s property to recover the amount they are owed.
To be clear though, this type of action would be a last resort. All secured loan lenders will work with customers first to try to find a solution before it gets to this stage.
Plus, this extra level of security does offer additional benefits for customers. There is the potential to borrow much larger loan amounts – from £5,000 to £2,000,000 – and repay the loan over a much longer period of time – from 1 to 30 years.
The amount a customer is eligible to borrow will come down to a number of factors, such as the amount of available equity in their home, their disposable income and the number of credit products they already have.
As a secured loan is a type of mortgage (second-charge mortgage), all customers will receive advice from a qualified adviser before they apply. A secured loan will only ever be sold to a customer if a qualified adviser deems that the product is affordable and will improve their financial situation.
Common use cases for secured loans
So, who might be in need of a secured loan? As a product, secured loans can appeal to a wide range of customers with varying credit histories and circumstances.
To help give you a clearer picture of where a secured loan might be a more favourable option than an alternative credit product, here are a few scenarios where they come into their own.
Avoiding mortgage early repayment fees
A customer may want to use the equity built up in their home to fund a home improvement project, but is in the middle of a five-year fixed-rate mortgage term. To avoid the hefty early repayment fee that comes with remortgaging to release equity, a secured loan could enable the customer to borrow against the equity in their home while avoiding the early repayment charge.
Access to lower APRs
Customers who don’t have impeccable credit scores may be able to access lower rates than if they took out a personal loan. A secured loan could therefore save the customer money each month and make their borrowing more affordable – something that can be especially beneficial to those wanting to consolidate debts.
Scope to borrow larger amounts
Typically, personal loans are restricted to amounts up to £35,000. Yet with secured loans, there’s scope to borrow much more. If a customer is planning a large-scale home improvement project or has a large number of debts to consolidate, a secured loan could be the only product that can cater for what they need.
The only borrowing option
There may also be customers who only have secured loans available to them. In this scenario, the customer can still fulfil their financial objectives within a fully regulated environment, rather than simply being turned away.
Why we need diversity
Product diversity gives businesses more scope to say “yes” while others are saying “no”. This not only boosts brand satisfaction, but ensures we can help even more customers that use our services.
Plus, in these difficult economic times, the market is uncertain. Over the past few years, we’ve seen huge changes to the economy that have had a dramatic impact on our customers’ daily lives. The fall in employment triggered by the pandemic, followed by a dramatic rise in prices and interest rates has had a huge impact on all our customers’ finances.
That’s why where one finance solution may not even be considered by one customer, it may offer a lifeline for another. What’s more, if a lender was to temporarily pull their products from the market, a diverse product mix can help to fill the void and allow us to keep fulfilling customer needs.
Just saying “no” is no longer enough
The Financial Conduct Authority’s (FCA) Consumer Duty update is set to come into effect in July 2023. This new directive requires all financial services businesses to deliver good customer outcomes from all the products and services they provide.
So, for businesses that currently offer limited financial products, is just saying “no” to customers who don’t meet your eligibility criteria delivering good customer outcomes? If these customers could be supported with alternative finance products not on your balance sheet, then the answer is probably no.
The alternative? Directing customers to another platform that can support them fulfil their financial objectives and deliver good customer outcomes. Businesses can also provide additional support by better educating customers about their financial situation and potential options.
Up until now, financial services businesses have only had to focus on what they deliver. This is about to change. Under Consumer Duty, businesses will be required to look at the complete picture and take a whole customer journey view.
As the standard of what businesses need to offer customers is raised, we all need to be finding ways to improve our offering. Product diversity is key to this – and secured loans offer a viable product solution to both prime and subprime customers who have differing financial needs.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.