Secured loans are often viewed as a last resort, due to the high risk factor associated with them. Without a doubt, there are risks involved, most worryingly that should you be unable to repay the loan installment, you are at risk of the lender selling your home. Secured loans are only available to homeowners, for this very reason. By naming it a secured loan, don’t be mistaken into believing that you will be offered security, it simply means that the lenders money is secured and will be claimed back by whatever means necessary. That doesn’t mean to say that taking out a secured loan is going to be bad news for everybody. They certainly have a place in the financial lending market and here are our top 5 reasons you may want or need to get one:
To put it into perspective: the maximum you can borrow if you take out an unsecured loan is £35,000, however, if you take out a secured loan you can take out up to £75,000, a huge difference. This is where you need to think carefully about what you are intending to use the money for and how much you think you will actually need. If you are in a considerable amount of debt, which needs clearing, then this may be the best option for you. Just bear in mind that the reason the lender is so keen to lend you a higher sum of money is that they are using your home as security. The value of your property will be taken into account and this will reflect the amount of money you can borrow.
2. Longer repayment period.
If you are someone who finds it hard to manage your finances and need a repayment plan in place then a secured loan may be the best option for you. The repayment plans of secured loans are generally longer than those of unsecured loans because there are substantial set up costs involved which the lender wants to be able to offset. Secured loans will generally have a repayment plan spread across anything from 5 to 20 years, whereas an unsecured loan will be capped at around 7 years maximum. The benefit of having a longer repayment plan is that you know exactly the amount that needs to be paid each month and considering it is likely to be a lower amount because it is spread over a longer time, it shouldn’t impact too greatly on your day to day finances. If life is a bit hectic for you and you find it hard to keep on track of your financial matters, setting up a direct debit to repay the loan back automatically will take the stress away from you.
If your credit history is much to be desired, then it is unlikely that you will be granted any other loan than a secured one. This is one of the many reasons people take out secured loans, but unfortunately it can result in their debt spiraling even more out of control and rather ironically damage their credit history further. Because secured loans offer security to the lender, often in the form of property, lenders are happier to lend their money to people with poor credit ratings – they literally have nothing to lose.
4. Better terms and conditions.
Because a secured loan carries no risk to the lender, they are much happier to offer attractive terms and conditions, most probably to fend off their competitors and to win your custom. If you are after a more generous loan agreement, which offers lower interest rates, less or ,even better, no penalty charges and longer repayment plans then what other reasons do you need to take out a secured loan.
5. Greater flexibility.
Some lenders may allow you to convert a fixed rate debt, for example a credit card debt, into a variable rate debt, which is where a secured loan comes in. If you takeout a secured variable rate loan, the interest rate will change according to the Bank of England base rate. This is a risk in itself, as some months you may end up paying less but likewise other months you may have to pay more. You need to question whether it is worth taking the gamble.
It is always worth talking to an independent financial adviser before making any decisions about your finances. There may be other options which you are not aware of and that may save you both money and heartache if your secured loan does not exactly go to plan.