Personal Loan

A friend of mine recently took out a rather large loan for a new car. He told the B/S that it was for home improvements. They were not bothered one way or another. The loan was secured against his home whose value is far in excess of the total value of the loan. They are charging him the mortgage rate of 3.5 - 4% rather that the standard rate of 10 - 11%. He is going to pay it off over 5 years rather than over the full period that his mortgage has to run.

How can the bank justify charging such a low rate for a homeloan and charging a much higher rate for a car loan.

If I have a normal personal loan and in the unlikely event that I default on this loan can the B/S register a judgement against my home.

BTW, If you go down this route, one thing that you need to take into account is that there may be a is a charge for legal fees and a survey.





Murt

Regardless of anything else, your friend has given false information to the BS.

A 'standard' rate of 10-11% seems high for a car loan-ptsb will do it for 6.9%

Mortgage rates are lower than car/personal loan rates not only because of the risk, but also because of the term.

Have you added the legal and survey fees to the rate to get the 'true' APR?

Whilst one should have told the FI what the purpose was, I dont think that is a major matter.

A loan secured on ones residence is exactly that. So if there is default etc they have rights on the property. Given the usual position of low LTVs any actions that might be pursued would mean that the borrower would lose heavily as well as paying the FI costs.

That said, loans secured on residences are widely regarded as having the lowest default risk of all. That is why the rate is lower. Also most people are still uncomfortable with using the residence as part of their main stream financing. This is easily balances by paying off the 'equity release' portions (such as the car loan) quickly ..which is what the research indicates many people do.