Is there a risk in taking out a Secured Loan?
Sep 13, 2006
One of the most common reasons for taking out a secured loan is to consolidate other loans and credit card debts. With a proliferation of companies offering increasing amounts of credit, many consumers have found themselves spending vast sums of money each month to cover their payments on unsecured borrowing. This can be accrued on unsecured personal loans, credit and store cards, along with other hire purchase agreements. Quite often, the level of repayments and high interest become unmanageable which often results in a great deal of stress for the consumer.
Simplifying the process
By taking out a secured loan, you can combine all that expensive credit and turn it into one convenient loan, simplifying your finances by only having to make one repayment per month with just one lot of interest.
Or, perhaps you are looking to fund and expensive purchase or to make costly home improvements? A secured loan makes it more affordable and easier to achieve. It is also far easier to secure a higher amount of borrowing than with an unsecured loan to fund those more expensive purchases or to lower repayments on an accumulation of unsecured borrowing. This is because the amount available to borrow is totally dependant upon the amount of equity available in your property - this being the amount of your property's market value, less any outstanding loans or mortgage still to be paid on it.
With a secured loan, you can enjoy a far lower rate of interest because there is less risk to the lender since the loan is secured against an asset. Lenders are always concerned about 'risk' and the biggest 'risk', from their point of view, is that you will be unable to repay the loan. Therefore, if you have provided them with some form of 'security', for example, an expensive asset, such as your home, then they will be far more willing to lend money to you.
Additionally, the repayment period for secured loans is far longer than that of an unsecured loan, enabling you to reduce your monthly repayments even further as they can be spread over many years.
Poor credit ?
Many people assume that because they have previously accrued arrears, CCJs or have defaulted on unsecured credit agreements, this makes obtaining a 'secured' loan impossible. However, this is not strictly true. The fact that you have a home or another expensive asset with which to 'secure' the loan means that lenders will often be willing to overlook your poor credit history, as you have the ability to provide them with security against the loan.
Why do secured loans offer a much lower rate of interest ?
Unsecured borrowing - personal loans, credit cards, store cards and other hire purchase agreements are more expensive as the lender takes more of a risk. You may have a good job, for example, and they offer you X amount of money over a certain period as they recognise that your salary will make the repayments affordable for you. But, what if you're made redundant, suffer long-term sickness? If these scenarios were to arise, how would you pay back the money you've borrowed? Therefore, the higher rates of interest reflect the level of 'risk' involved to the lender.
With a secured loan, you are giving a 'guarantee' to the lender that you are willing and able to repay the debt. This isn't simply a verbal or written promise. You put your personal property behind your agreement; therefore, there is less risk for the lender and lower interest rates for you.
The 'equity' in a property - the value of the property once an outstanding mortgage or loan is subtracted - is simply a figure on a piece of paper lying dormant. A secured loan frees up that equity to enable you to get your hands on money that would, otherwise, have remained unobtainable or would, perhaps, take you years to save up. This allows you the freedom to spend it on whatever you want, such as paying off debts, making home improvements, buying a new car or going on that luxury cruise - in fact, you can spend it on whatever you want.
So what's the 'catch' ?
There is no 'catch'.
However, it is important to remember that a 'secured' loan means exactly that - it is 'secured' against an expensive asset, usually your house. If you suddenly lose your job or you fall ill and cannot repay the loan, the lender can simply recover its money out of your property and that can mean that they can force you to sell your home. So, what you have to ask yourself is how likely this is to happen to you? The chances are it won't but none of us can predict the future so it is important to be fully aware of the consequences. You have a couple of important points to consider before taking out a secured personal loan in order to protect both yourself and your property.
Firstly, you should never look to borrow so much cash that your repayments, in themselves, are beyond your personal income level. If you're unsure as to how your finances would cope with the loan, you need to talk to a secured loans specialist and/or an independent financial advisor to get some advice first.
Secondly, you should seriously consider getting a payment protection insurance policy for your secured loan. Whist this involves some additional cost, it will ensure that, should you run into difficulties in meeting your repayments at any point, then the insurance company will, in certain circumstances, keep making the payments to your lender on your behalf for a certain length of time, until you are able to resume making them yourself. It is, however, crucially important to fully understand the terms of conditions of any payment protection policy prior to purchase.
Releasing equity is prudent borrowing
Whether you're looking to consolidate existing debts that have become unmanageable or you're simply looking to raise a fairly large sum of money for whatever purpose and you have equity in your property, a secured loan is by far the most cost effective option open to property owners. With many people 'sitting on' large sums of money that are tied up in their property, paying extortionate fees on unsecured lending agreements, makes little sense when you could enjoy far better rates over a greater repayment period by taking out a secured loan which simply allows you to unlock the money that would otherwise be tied up in your property.
With Secured Loan UK .com, no matter whether you're Status or Non Status, being a Homeowner means we can get you a competitive rate that matches your credit history.
All you have to do is complete our Secured Loan Application Form and let us give you a FREE and NO obligation quote.
