Having the option to borrow money is something we can take for granted if in full time employment and have a good credit score. The reality when your self-employed or have a low credit score can be very different. Proving your ability to make repayments and that you can afford the loan you want can be a difficult task. For this reason, many of you may overlook the option of a secured loan to help your finances. Whether you’re looking to own a property, vehicle or other high-value purchase, it may seem like unless you’re earning a huge sum every month that these types of asset are difficult to obtain.
Of course, that couldn’t be further from the truth when you’re self-employed. With a reported 16 million people currently working for themselves in the US, that’s a lot of potential customers lenders would be missing out on; 30% of the nation’s workforce in fact. This is why the option of secured borrowing is still a great option for many, as long
You Need Collateral
When looking for higher value loans, more than likely an unsecured loan will be difficult to find. This is because of the higher risks involved for the lender. If they are going to approve your loan, you’ll need to be able to back it up just in case you have a month where cash flow is low, and you suddenly can’t maintain repayments for the foreseeable future. A lender will need certain assurances, which is why a secured loan would become a more attractive proposition. To be able to apply for one, you’ll need to have the collateral available that in most cases will match or be higher in value than the loan in question. This can be any form or personal valuables, but most commonly would be a vehicle or property. You may find some lenders who can allow you to use other types of valuables, for example, jewellery or art if you have it, but these tend to be few and far between. To successfully get approval for a secured loan you would need to state what that collateral is or is going to be. So, for example, if you are buying a property, you would need to state what this is and its value. This way, a lender can consider, if the worst-case scenario happens, whether the collateral can cover the loan amount.
Check Your Credit Score
Getting a secured loan can vary depending on your credit score. Ideally, you’ll have a good credit score whilst being self-employed, however, many people may find their credit rating may have slipped since being self-employed. The good news is you can still find secured loans for bad credit, it’s just a question of where you look for them, and as long as you avoid non-trusted lenders, you can get great rates. The only way you’ll know if you have good or bad credit is by getting in contact with a credit reference agency. There are a few you can choose from if you haven’t ever checked your score before. The four main ones to use are Experian, Equifax, TransUnion and Innovis. Each uses a slightly different scoring system to rank your credit, but are all very clear on whether it’s a good or bad score.
You may need to sign up to see your full credit report, which is worth checking periodically, but most will be able to show you your score without payment. You can then choose to investigate further if it is a poor rating so that you can see exactly what’s keeping it low. There can be numerous reasons for a low score, but if you know you’ve missed payments in the past on a loan, or have defaulted in the last few years, you will expect to see a less than positive outcome. If you see only good news when checking your score, then that’s one less thing to worry about.
Audit Your Finances
Along with checking your credit score, you should be checking through what you can actually afford. Most lenders will want to see you can afford the loan you want, especially if you have bad credit. If you have no disposable income and a low credit score, a secured loan will be near impossible to get. In fact, any loan or borrowing will be extremely difficult to find without very high-interest rates and fees in this scenario. A secured loan will only be beneficial if you can afford to maintain it, otherwise, the risks involved can be very costly. By auditing your finances we mean fully, or as full as possible. You need to work out, from a personal use point of view, what disposable income you are left with. Being self-employed makes this a bit more complicated, as you need to separate your business outgoings from personal. But eventually, you should have a clear picture of what you are left with. Ideally, you will need to have a comfortable amount that will easily cover the secured loan repayments you are requesting, so that you can avoid using all your disposable on this.
Secured Lending to Secure Your Dreams
To most people, secured loans provide a way to achieve what you want in life without needing the cash saved first. If you want to own your dream property, secured lending is the way to get it. Planning on a once in a lifetime event like a wedding abroad? A secured loan can help you do that. As a self-employed applicant, this could be as simple as injecting your business with investment to build from, with most business loans a form of secured borrowing. Yes, there is risk involved with secured lending, but it’s risky making the jump from full-time employment to self-sufficiency. Having the extra push and financial backing can make a huge difference. If you can find an investor to do this then great, but they will become a shareholder most likely and expect something in return. A secured loan is similar, but instead, you have a fixed repayment plan in place, no other expectations apart from clearing it on time.
Even if you feel that being self-employed presents a disadvantage to a lender, there are many out there who will understand your situation. Not all lenders will do this, traditionally the banks may be more cautious before lending to you and you’ll have to provide evidence of your income over a long period of time, sometimes a few years. However, there are numerous lenders that have emerged over the last few years who only need to see your bank statements over a shorter period to provide approval. This means it is much less of a chore to prove what you can afford than in the past.
Lower Interest Rates For You
If you can find the best lenders for secured loans, you’ll be able to find the best rates. Easy for us to say, but assuming you have good credit, plenty of disposable income (as well as the proof), and have the collateral to back up the loan, the best rates should start to appear. One of the main benefits of secured loans is that the interest rates tend to be lower on the whole. This is because a lender has assurances from your collateral that you can make the repayments and can afford to charge less each month. This is not a given with all lenders of course, but you should see some great options for the right circumstances. This can be helped further if you can afford to pay a larger down-payment at the beginning, lowering the value of the loan needed. The same goes for the length of the secured loan too, with a shorter-term benefitting from lower interest overall. This is where it’s important to shop around and compare what you find so that you know if it’s benefitting you.
If You Own Your Home, Use it to Your Advantage
You may be looking for a loan and already have a mortgage, or even better, own the property outright. This means that if you can’t seem to find credit through other means, secured lending comes in very handy for homeowners. How? Well, it comes down to the value of your home and how much you owe on it. Whatever the value of your home on the market, you may be able to release equity in this value. For example, if your property is worth £250,000 and you have a remaining amount of £150,000 on your mortgage, this means £100,000 is in equity. Potentially you could borrow up to that equity value with a secured loan. This can be a great option as it will involve the same lender that you already have the mortgage with and help prove your worth when self-employed. Especially if you’ve not had any problems with repayments with them in the past, you’ll find this could be the easiest and best option for you.
This option does come with certain conditions and will depend on your lender, for example, you may only have this option if you’ve held the mortgage for a certain number of years, or you are of a certain age. If you own your home outright, then you can choose from any lender to value your property and look to release equity, as the property will be the secured asset for collateral. Amongst the many reasons why secured borrowing is still a great option if you’re self-employed, you would need to fully consider your reasons for wanting more borrowing. As there are higher risks involved, you would need to ensure you’re happy with using the asset you’ve put up as collateral, in case you find yourself in a long term cash-flow problem. Hopefully, you’ll find many great options through secured lending that you may have thought weren’t possible as a self-employed applicant otherwise.