Some advice on loans and charging orders

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To sustain payments on bills or debts loans can be one of the few options. When a consumer borrows money from a financial company, such as a bank or building society, this is termed an 'unsecured loan'.

This is because the lender has not secured the loan itself directly to the value in the borrower's home. When money is lent as part of a 'secured loan', the lender has the opportunity to reclaim the cost of the loan by forcing the sale of the house, in the event of default or inability to make the agreed repayments. These loans are usually judged to be riskier and unsecured loans to be preferable.

It should be noted that it is feasible for the lender to seek a charging order against the house as collateral for their loan. This is a long process for the lender and unusual to come across in practice, yet it does occur and the ramifications for the borrower, if they are unable to meet the required repayments, can be unpleasant, regularly ending in repossession.

A charging order or ‘charge’ is not only applicable to a borrower’s home. Anything can be designated by a court of law to be used as collateral to pay off the loan. This can extend to investments such as stocks and shares as well as property and savings. If a property is sold while there is a charge against it all money owing must be paid back to the loan company before the remainder can be paid out to the borrower.

Basically, as a consequence of the charge, the borrower is not the priority for receipt of any money from the sale of their property. The order of payment is usually as follows; first and foremost comes any remaining money owed on a mortgage followed by the charging order, solicitor’s fees and any estate agent fees. After this there is additionally stamp duty to take into account so there can be a significant loss of finance when it comes to the borrower’s turn to receive payment.

A charging order has to be obtained by the lender through the courts. They will mostly be applied for if the borrower has failed to make an agreed payment or sequence of payments within the terms of the agreement. For a charging order to be implemented a lender must have a hearing in a county court. The county court hearing will take into account different issues like; the debtor's individual situation, whether the enforcement of a charging order would stop other creditors from getting their debts or whether anyone affected by the enforcement has a disability or a severe illness.

If the court decides that the order must be enforced the borrower can ask for a payment structure that is based on their financial situation at the time and in the coming years. Or, if the debtor is working, the payments can be taken directly from his or her wages - assuming that the process does not affect their employment.

Consult an online comparison site like The Motley Fool’s Loan Comparison Centre if you want to take out an unsecured loan. At the time of writing two of the top deals were the Alliance & Leicester personal loan offering an APR rate of 6.5% and Moneyback Bank personal loan giving an APR rate of 6.3%. An Alliance & Leicester secured loan also emerges as a good choice with an impressive 7.9% APR.



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