Nsecured Loan To Secured Loan How A Loan Company Can Convert Your Debt And Claim On Your Home

Nsecured Loan to​ Secured Loan - How a​ Loan Company Can Convert Your Debt And Claim on​ Your Home
Warnings have been issued recently by debt counselling charities,​ regarding an​ increasing trend by some of​ the​ high street lenders to​ issue charging orders on​ borrowers’ homes in​ order to​ recover bad debts .​
Major names in​ loan provision such as​ Abbey,​ Alliance and Leicester,​ Bank of​ Scotland,​ Halifax,​ Lloyds TSB,​ Nationwide,​ and Northern Rock have all admitted to​ using these measures to​ turn an​ unsecured loan into one that is​ secured against the​ borrower’s house .​
When a​ loan is​ taken out,​ it​ can be either secured against the​ borrower’s property and should repayment defaults occur then the​ lender can still recover their money through the​ sale of​ the​ property,​ or​ it​ can be unsecured so that no such guarantee is​ offered by the​ borrower .​
Due to​ the​ obvious financial risk advantages to​ the​ lender and the​ much lower default rates which occur with secured loans when compared with unsecured loans,​ increased borrowing limits and lower interest rates are usually available for those who choose to​ opt for a​ secured loan .​
Charging orders are a​ legal means of​ converting a​ loan that has been taken out without the​ provision of​ securing that debt against your house into one where the​ debt is​ secured against your property .​
Having a​ charging order put on​ a​ house means that when the​ property is​ sold and the​ mortgage is​ cleared,​ any money that is​ then left over will automatically go to​ pay the​ remaining outstanding debt .​
According to​ Fool.co.uk this means that you​ cannot sell your house until you've paid off your mortgage,​ any second mortgage and other secured loans,​ plus the​ amount due under the​ charging order .​
It should be noted that before a​ court will consider an​ application granting a​ charging order,​ the​ lender must have issued a​ county court judgment against the​ debtor and the​ borrower must have failed to​ make the​ required payments on​ that judgment as​ agreed by the​ court .​
Also a​ charging order does not of​ itself ensure that the​ lender gets repayment of​ the​ outstanding debt but it​ does prevent the​ debtor from selling their property without paying what they owe .​
The debtor is​ not under any obligation to​ sell their property once the​ charging order is​ put in​ place; however,​ there are some extreme circumstances where it​ is​ possible for a​ lender to​ apply to​ a​ court in​ order to​ force a​ sale .​
It is​ very rare for the​ court to​ allow a​ creditor who has a​ Charging Order Absolute to​ sell your home .​
It is​ up to​ the​ court to​ decide whether to​ make an​ Order for Sale .​
Currently the​ number of​ charging orders being issued is​ about 35,​000 per year; however this figure is​ gradually rising .​
According to​ the​ BBC,​ Advisers say the​ practice is​ becoming so common that the​ way loans and credit cards are being marketed should change to​ include mortgage-style warnings that your home may be at​ risk if​ you​ miss repayments .​
Whilst most people would agree that lenders should be able to​ recover the​ money lent,​ the​ whole point of​ an​ unsecured loan is​ that it​ will not put the​ borrower’s home at​ risk if​ future financial difficulties are encountered and they cannot meet the​ repayment schedule .​
Peter Tutton of​ the​ Citizens Advice highlighted that the​ banks are also profiting from this practice as​ they are still charging the​ higher interest rate of​ the​ unsecured debt,​ lenders are kind of​ getting it​ both ways,​ they are getting the​ risk premium off the​ borrower,​ but they are getting the​ security of​ the​ charge and that seems unfair .​
Malcolm Hurlston of​ the​ Consumer Credit Counselling Service told the​ BBC,​ that if​ the​ practice of​ using these orders to​ force unsecured loans into secured loans increases at​ the​ current rate then,​ it's something that ought to​ attract the​ attention of​ the​ Department of​ Trade and Industry or​ the​ Financial Services Authority .​
The Financial Services Authority in​ turn stated that they had no authority to​ intervene and that it​ was a​ matter for the​ Department of​ Trade and Industry .​
With the​ current lack of​ regulation covering the​ situation,​ the​ best thing to​ do is​ prevent yourself getting into a​ state of​ affairs where you​ could become subject to​ a​ charge order.
* Compare as​ many loans as​ possible using sites such as​ Moneynet ( www.moneynet.co.uk/loans/index.shtml )
* Check your own financial situation – can you​ afford the​ repayments now and do you​ expect to​ be able to​ meet all future payments? Using loan calculators such as​ ( www.fsa.gov.uk/consumer/04_CREDIT_DEBT/loan_calculator.html ) can help decide whether you​ can afford to​ take out a​ loan.
* Read through all documentation and any agreements carefully.
* If you​ do obtain a​ loan,​ and later have financial difficulties and miss repayments,​ immediately speak to​ your lender to​ discuss the​ problem.
* If your financial situation becomes serious,​ contact Citizens Advice or​ the​ Consumer Credit Counselling Service for free expert advice on​ how to​ proceed.
Useful resources:
Moneynet loan comparisons ( www.moneynet.co.uk/loans/index.shtml )
Financial Services Authority loan calculator ( www.fsa.gov.uk/consumer/04_CREDIT_DEBT/loan_calculator.html )
All information contained in​ this article,​ is​ for general information purposes only and should not be construed as​ advice under the​ Financial Services Act 1986 .​
You are strongly advised to​ take appropriate professional and legal advice before entering into any binding contracts.

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