Homeowner loans, also known as secured loans or second charge mortgages, are often the subject of misconceptions that deter many from considering them as a viable financial solution.Â
At Pepper Money, we believe it’s crucial to address these myths and highlight the true benefits of modern homeowner loans.
Misconception 1: Always expensive
One myth we frequently encounter is that homeowner loans come with exorbitant interest rates. This is simply not true.
In fact, with rates now available in the market from under 6%, secured loans often offer more competitive rates compared to unsecured loans and credit cards. This is because the loan is backed by collateral, reducing the lender’s risk and allowing them to offer lower rates.
This is particularly important given our current economic climate, where over half (57%) of respondents to our Specialist Lending Study reported a decrease in disposable income due to the cost-of-living crisis.
Misconception 2: Only for people with bad credit
Another common misconception is that secured loans are exclusively for individuals with poor credit histories. While it’s true that secured loans can offer a respite for those looking to rebuild their credit profile, they are not limited to this group.
Homeowners with good credit profiles can also benefit from second charge mortgages, often securing even better terms and rates. These loans are versatile financial tools suitable for a wide range of borrowers.
This is especially relevant given that 8.38 million people have experienced adverse credit in the last three years, the highest level since our Specialist Lending Study began.
Misconception 3: Only for specific purposes
Many people believe that secured loans are limited to certain uses, such as home improvements or debt consolidation. However, secured loans can be used for a variety of purposes, including funding major life events, or even investing in education.
Conditional on homeownership, the flexibility of these loans positions them as an attractive option for homeowners with many different financial needs or at different life stages.
Misconception 4: A long time to complete
The notion that secured loans are slow to complete is outdated. Technological advances and streamlined application processes mean that secured loans can now be approved and completed much more quickly.
At Pepper Money, we pride ourselves on our efficient service, ensuring that our customers receive the funds they need in a timely manner. On average, we now pay funds to customers in less than 10 days from initial application, 30% quicker than a year ago.
Misconception 5: Hard to repay early
Finally, there’s a widespread perception that repaying a secured loan early is difficult and comes with hefty penalties. While some lenders may impose early repayment charges, many, including Pepper Money, offer flexible repayment terms that allow for early repayment without significant penalties.
This flexibility makes homeowner loans a practical and attractive option for those who may want to repay their loan early such as if they remortgage, receive a bonus at work, or even an inheritance.
A valuable financial tool
Modern homeowner loans offer an opportunity to borrow confidently with competitive rates and adaptable repayment terms. They are not just for those with bad credit or specific needs but are versatile tools for managing finances or funding major expenses.
At Pepper Money, we are committed to providing loan solutions that meet the diverse needs of our customers, helping them achieve their financial goals with ease.
Rob Barnard is intermediary relationship director at Pepper Money
