20 Jun, 2014

What is Secured Loan?

There may be a time in your life when you need to borrow money.  Whether it is taking out a mortgage, buying a new car or simply that you need some help to get out of a financial rut, there are not many of us that don’t rely on an extra helping hand at some point. The key thing is to find a loan, which best suits your needs and financial situation.

Secured loans are based on money borrowed, which has been secured against an asset you already own.  In most cases this is usually made against a home and for which reason is also known as a homeowner loan.  Secured loans can be taken out for anything between £5,000 up to £125,000 however, the term and interest rate will vary depending on your personal circumstances and the amount of equity you have in your property will all affect the credit agreement offered by the loan company. Confusingly, secured loans can often be referred to by different names.

Here are the more common ones:17

Debt consolidation loans

Home equity/Home owner loans

Second mortgage/second charge mortgage

First charge mortgage (although this is more unusual)

Although secured loans are often the cheaper option, as interest rates tend to be lower, it is most definitely the riskier option.  If you miss repayments on a secured loan you are at risk of losing your home. it is essential that you sit down and work out whether you will be able to afford the payments each month before you agree on anything.

If this sounds like a risk you would not be willing to take then a secured loan is not for you and it would be worth taking out an unsecured loan instead.  Unsecured loans do not need any form of collateral and therefore there is no risk of losing an important asset if you don’t keep up with payments.  The loan company will take a lot more persuasion before they agree to lend you the money and they will base their decision on your income and credit history.  Unsecured loans will generally carry a higher interest rate than secured loans as there is a higher risk of non-payment to the loan company.  Common examples of unsecured loans are personal loans, student loans and payday loans and borrowed money can be anywhere between £1,000 up to £25,000 and beyond. It may also be the case, that if you have a less than desirable credit history, then the loan company will not want to lend you the money and you will have no other option than to take out a secured loan. best-secured-loans

One of the advantages of taking out a secured loan is that the amount which can borrowed is generally much higher than if you were to take out an unsecured loan and the repayment period is over a much longer time. The fixed monthly payments should make it easier to manage your repayment plan, just make sure that you check the terms and conditions thoroughly as there may be hidden fees and charges such as early repayment penalties. The usual repayment period for secured loans is from five to twenty years, based on an initial agreement of how much you can afford to pay back each month and on how much you have borrowed. Secured loan lenders prefer to have a longer loan period as it helps offset the initial set up costs that they incur. It is worth remembering that although a longer repayment period will reduce the amount you have to pay back each month, there will be a much higher rate of interest and the increase in interest over the longer period will be significant.

Generally, secured loans should be considered a last resort. Unless you are taking one out to get rid of existing debts then it is worth exploring all of the other options available to you.  The last thing you want is to lose your home and be in an even worse financial situation.


About : Simon

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