There are two basic categories that most loan types fall into – Secured and Unsecured.

Secured Loan

Secured loans are those loans that are protected by an asset or collateral of some sort. The item
purchased, such as a home or a car, can be used as collateral, and a lien is placed on such item.
The finance company or bank will hold the deed or title until the loan has been paid in full,
including interest and all applicable fees. Other items such as stocks, bonds, or personal property
can be put up to secure a loan as well.

Secured loans are usually the best (and only) way to obtain large amounts of money. A lender is
not likely to loan a large amount with assurance that the money will be repaid. Putting your
home or other property on the line is a fairly safe guarantee that you will do everything in your
power to repay the loan.

Secured loans are not just for new purchases either. Secured loans can also be home equity loans
or home equity lines of credit. Such loans are based on the amount of home equity, which is
simply the current market value of your home minus the amount still owed. Your home is used
as collateral and failure to make timely payments could result in losing your home.

Secured loans usually offer lower rates, higher borrowing limits and longer repayment terms than
unsecured loans. As the term implies, a secured loan means you are providing "security" that
your loan will be repaid according to the agreed terms and conditions. It's important to
remember, if you are unable to repay a secured loan, the lender has recourse to the collateral you
have pledged and may be able to sell it to pay off the loan.

Examples of Secured Loans:

 Mortgage
 Home Equity Line of Credit
 Auto Loan (New and Used)
 Boat Loan
 Recreational Vehicle Loan

Unsecured Loan

On the other hand, unsecured loans are the opposite of secured loans and include things like
credit card purchases, education loans, or personal (signature) loans. Lenders take more of a risk
by making such a loan, with no property or assets to recover in case of default, which is why the
interest rates are considerably higher. If you have been turned down for unsecured credit, you
may still be able to obtain secured loans, as long as you have something of value or if the
purchase you wish to make can be used as collateral.
When you apply for a loan that is unsecured, the lender believes that you can repay the loan on
the basis of your financial resources. You will be judged based on the five (5) C's of credit --
character, capacity, capital, collateral, and conditions – these are all criteria used to assess a
borrower's creditworthiness. Character, capacity, capital, and collateral refer to the borrower's
willingness and ability to repay the debt. Conditions include the borrower's situation as well as
general economic factors.

Examples of Unsecured Loans:

 Credit Cards
 Personal (Signature) Loans
 Personal Lines of Credit
 Student Loans (note that tax returns can be garnished to repay delinquent student loans)
 Some Home Improvement Loans

Secured loan steps

As ever, the application process for a secured loan usually starts with a phone call, email or fax
(yes, fax machines still exist) from one of our introducing brokers.
Stage 1 – initial fact find
During that initial call we will carry out a basic fact find. Although the loan amounts on
secured loans are generally much lower than on bridging loans, the secured loan fact find is
actually much more detailed as a far greater emphasis is placed on income and affordability.
The fact find will cover off areas such as:
• Full name, DOB and three years’ of addresses
• Details of the property being used as the security
• Employment status, e.g. employed, self-employed
• If self-employed, limited company or sole trader?
• Availability of proof of income, e.g. payslips, accountant’s details or SA302?
Once we have all this information we will know whether or not the application is likely to
succeed and with which lender.
Stage 2 – searches
Nine times out of 10 we will be able to offer an instant decision and indicative terms subject
to credit and Land Registry searches, which we ask the broker to approve on behalf of the client.
Once the results of the searches come back, we will then know 100% whether or not the loan
application can go ahead.
Depending on the results of the credit search, the loan could be offered on slightly amended
terms, e.g. a higher interest rate or a lower LTV.
Stage 3 – client contact
At this point, if the broker didn’t ask us to deal with the client directly from the very start
(this can happen), we will ask for his or her permission to speak to the client direct.
 The client will be talked at length through all fees, the size of the loan, its terms and
conditions and all other relevant information.
At this point, how the application proceeds depends on whether or not the loan is secured
against the applicant’s main house or a buy-to-let property.
If the former, it will be classified as a CCA-regulated loan, while a loan secured against a
buy-to-let property will not be regulated. Let’s look at CCA-regulated loans first.
Stage 4 – CCA-regulated loans
With CCA-regulated loans, once someone at Enterprise has called the client and talked them
through the details of the loan, we will issue a pack containing all the relevant loan
documentation, which the client must fill in and return.
They will be required to formally provide full proof of ID, address and proof of income, e.g.
SA302, accountant’s details, pensions awards letters or payslips if retired, or even proof of
benefits.
Essentially, everything that was discussed with the broker in the first call will now need to be
supplied by the client.
During the call, we will also explain to the client that we will not be in touch during the next
eight days, as we are required to enter into a legal consideration, or ‘cooling-off’ period. The
same applies to the client’s broker.
Eight days later, and presuming we have received back all the information requested in the
first pack, we will send the client a second pack of documents containing the legal credit
agreement and the mortgage deed.
At this point, we then enter into a second 8-day cooling-off period but this period can be
broken once the legal credit agreement and mortgage deed have been returned.
 
Stage 5 – consent and valuation
Once both sets of documents comprising all necessary paperwork have been signed and
returned, we set out to obtain a mortgage reference or consent to a second charge from the first
charge lender. Once these have been arranged, we have almost everything we need on file to
support the application.
The last thing to do is to instruct the valuation, which will be carried out by a panel surveyor
of whichever lender we will be submitting the loan to. This will generally come back to us within
48 hours. As ever, some lenders will accept a desktop valuation but in most cases a full valuation
will be carried out.
Stage 6 – quality check
Presuming the valuation is satisfactory, whoever is dealing with the case will run it by a
senior member of the Enterprise team, who will review it in detail one last time.
This is essentially a quality check we have in place to ensure that when the application does
get to the lender, everything that should be in the case file is in the case file.
We carry out this final quality check as it speeds up the completion process with the lender.
Stage 7 – submit case file
After the quality check, we will submit the full case file to the lender. Some lenders are
happy to receive everything on email, others prefer to receive everything in the post.
It’s also worth pointing out that certain lenders will allow us to submit a part-completed pack
half-way through the application so that they can start assessing it in advance.
 This clearly speeds the process up even further as they only have to press the button once the
rest of the pack comes in.
Stage 8 – fraud check
Once the lender has all the information and is happy with it, prior to drawdown of the funds
it will call the client directly and ask them some general security questions. This is merely to
safeguard the borrower against fraud and does not constitute further due diligence.
Presuming the call is successful, the lender will then pass the fully completed case to its
credit committee where it will be signed off by one or more directors.
Once this is done, the funds will be released, usually by BACS but sometimes in the form of
a cheque. Typically, the whole process from start to finish will take three weeks.
The process above was for CCA-regulated loans. The process for loans secured against a
buy-to-let property is the same but there is no 8-day legal consideration period. Clearly, this
means they will typically be arranged quicker than CCA-regulated loans.