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Secured Loans Explained

Secured loans are a type of loan whereby you have to put up personal assets as collateral which will be used to repay the loan in the event you do not or cannot pay. This added security makes the loan proposition much less of a risk for the lender you choose. The fact that there is pledged security on this type of loan does not automatically mean you will be awarded the money or get a lower rate of interest. Generally speaking though you are in a position to get better terms when you have some form of security for the loan.

Requirements for a Secured Loan
The majority of lenders that offer secured loans specify that you have to be a home owner – and for this reason secured loans are also often known as home owner loans. The property you own has to be valued higher than the amount you want to borrow and you have to have a decent credit history as well. It doesn’t matter if you have a mortgage on the property as long as the equity is sufficient to pay the debt you want to secure on it.

People with bad credit or county court judgements might also be considered for a secured loan if they are in permanent employment and they have a large amount of equity in their property.

The Benefits of a Secured Loan
Because there is an element of security with secured loans, the interest rate charged on the debt is often lower than those of unsecured loans. This means that you can potentially borrow a larger sum of money and pay off outstanding unsecured debts such as credit cards and current account overdrafts. The repayment period is also longer in most cases and this means the monthly repayments are lower than having the same amount but unsecured.

The Drawbacks of Secured Loans
As already mentioned, the main drawback is that your property is at risk if you can’t keep up the loan repayments and this has to be considered before agreeing to anything. Most secured loans also come with an early repayment fee. This means that if you finish the loan early, either by paying it off or by changing to a different provider, there will often be a hefty additional fee to pay. You should also look at any other charges and fees that are associated with this type of loan when making your initial comparison.

This type of finance is a good, low cost option if you know without a doubt that you can afford the repayments now and in the future. If there is any doubt though then it is advisable not to secure your home on a debt.