A remortgage isn’t always the answer.
Sonny Gosai, sales & operations manager at Clever Lending, highlights how secured loans have a key role to play in resolving debt problems and even helping clients retain their existing mortgage.
A secured loan can be used in many situations to help get a client get their finances back on the right track. When the client has a poor credit profile or CCJ(s) they often don’t want to go down the debt management plan (DMP) route. Also, when they want to retain an existing mortgage deal, either because it’s got high early repayment charges or has a low rate the client doesn’t want to lose. A remortgage isn’t always the answer.
What we are also seeing is secured loans being used to settle unsecured debt that has built up over several years. Anything from store cards, to credit cards and unsecured loans. When these are combined, the client can have a debt pool that they may ultimately sink in. But a secured loan can help them take back control of their household budget through one steady payment.
“We find many clients are not wanting to go down the DMP route to get them out of these situations. Before they come to us many have looked at these options but decide that they want a solution that will leave them in a better position in years to come. Hardly anyone we’ve dealt with recently wants to take things further by applying for an IVA or bankruptcy.
Many brokers and their clients are unaware that secured loans can cater for these situations and be the answer to their mounting problems. However, once explained, most take up the opportunity to have just one, lower monthly payment and a route to get their credit profile back on track.
Below are three typical cases Clever Lending have worked on in the last few weeks that highlight the points raised above.
1. The client had a debt of £18,059. With contractual payments and a CCJ, they weren’t eligible for a DMP or a remortgage. A secured loan was arranged which cleared his unsecured debts, provided peace of mind and has the option to be reviewed when a remortgage becomes a possibility in the future. Previously they were paying £620 a month, but with a secured loan (over 108 months) this was reduced to £296, a saving of £324 per month.
2. With an unsecured debt of £42,711, this client had high ERCs on their mortgage and didn’t wish to select a re-mortgage. With no defaults on their payments the clients chose a secured loan option. This enabled them to avoid defaults on any money owed and prevent further adverse credit – something they were very keen to do. They took a secured loan for £50,020 over 132 months and reduced their monthly payments from an eye-watering £1,104 to £505, a significant saving of £599.
3. The client originally had a surplus of just £75 per month due to debts. They had previously been declined a loan from other lenders due to missed mortgage payments and they also had a fixed rate and a high ERC on their mortgage. Their unsecured debt was £23,163 and the client didn’t wish to go down the DMP route. A secured loan option was chosen for £23,200 over 192 months, which reduced their monthly payment from £833 to £249, a massive saving of £584. They also have the opportunity to review this in the future when a re-mortgage becomes an option.
