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If you’re looking to make major improvements to your home, consolidate large debts or fund a big-ticket purchase, a £50,000 loan could be just the trick. But when borrowing such a substantial amount, it’s important to be aware how to get a deal with the best terms. Failing to do so could cost you thousands over the duration of your loan.
When borrowing amounts as large as £50,000, you’ll almost certainly have to opt for a “secured loan”. With a secured loan you agree for an asset to be used as collateral against late or failed payments. More often than not, this collateral will be the equity in your property, and as such these loans are often referred to as “homeowner loans” or “second-charge mortgages”.
Many lenders cap “unsecured” lending (which involves no collateral) at £25,000, however some big banks can offer up to £50,000. As these loans are more risky for lenders, they typically come with a higher rate and very strict eligibility criteria. If your credit file isn’t spotless, it’ll be extremely difficult to get approved and if you do get approved, the interest rate you’re offered might not be the most competitive. Additionally, it’s generally a requirement that you’re an existing customer of the bank – and ideally your relationship with the bank would go back a few years.
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The loan illustrations above use approximate, rounded figures, based on a flat interest rate. Longer-term secured loans are likely to have variable interest rates. If the rate goes down during the course of the loan, the monthly and overall costs would decrease. If the rate rises during the course of the loan, the monthly and overall costs would increase. Current interest rates are low compared to historical averages.
The minimum income requirements will vary depending on factors like the term of loan that you opt for. All lenders must be able to demonstrate that they are lending responsibly. In other words, they have been careful to make sure that you’d be able to afford the proposed repayment schedule, taking into account your income and outgoings. For example, if you’re an applicant with a £35,000 salary but relatively low regular financial commitments, you might actually stand a better chance than an applicant with a £50,000 salary and exorbitant monthly outgoings.
Ultimately your income is just one important part of the picture a lender will use to assess your case.
Loan companies might specify a minimum income requirement in their basic lending criteria (example below), however meeting these entry-level criteria means that your application can be assessed for approval, not that approval is guaranteed.
If you’re applying for an unsecured personal loan of £50,000, it’s very likely that you will need an excellent credit score. Different credit reference agencies use different scoring systems, but for Experian an Excellent score is 961 or higher. For Equifax, it’s 466 or higher and for TransUnion, 628 or higher. However your credit score is just one factor on which your application will be assessed.
If your credit rating is not excellent, you may opt to use the equity in your home as security. In this situation, your credit score becomes a less crucial factor – but still a factor. The importance given to your credit score will vary from lender to lender, with some lenders specifically aiming to serve those with bad credit.
If you’re in the minority of people that can get approved for an unsecured loan of this size, then it could theoretically be in your account the same day. Realistically, larger loans are likely to get a bit more focus from actual human underwriters (that’s the people who stand between you and getting your loan) which can mean the process takes a couple of working days.
Secured loans more commonly take 2-3 weeks to arrange and draw down. Although there aren’t solicitors involved, a property valuation of some form will be required and the bank holding the first charge over the property will also need to give its approval.
These extra steps make secured loans a little slower, but the trade-off for many is access to lower rates and/or larger sums.
You can adjust your loan term in order to make your monthly repayments more affordable. Similarly, you can increase your monthly repayment in order to clear the loan in less time. As a general rule of thumb, spreading repayment over a longer timeframe normally makes for lower monthly repayments (but a higher overall cost). So it really depends on what you can afford to repay each month.
At a fixed annual rate of 5.5%, a £50,000 loan would take a little over 11 years to repay if your monthly repayment was £500. If you wanted to keep the monthly costs down however, and paid £400 each month, it would take around 15 and a half years.
Here are some of the key factors that will matter to a lender weighing up the risk of lending to you:
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