Monday, February 18, 2008

Secured loans – the facts

A secured loan is an effective and affordable way to borrow if you are a homeowner, and rising equity levels over recent years has resulted in a rising number of homeowners deciding to take out this type of loan. There are a number of valuable benefits that come with a secured loan, which is partly why this type of finance has become increasingly popular. However, when considering this type of loan it is important to take into consideration the full facts, accounting for both the benefits and the risks, before you make any commitment.

There are a number of key things to remember about secured loans, and this includes:

Longer repayment periods: These loans offer longer repayment periods than unsecured loans, and this means that you can spread your repayments over a longer term and keep your monthly repayments down as much as possible to increase affordability.

Increased borrowing power: Although the amount that you can borrow by way of a secured loan depends on a number of factors such as your credit rating, your income, and your equity levels, you will find that the borrowing power with these loans is higher than with unsecured loans, so this increases flexibility and enables you to raise the higher levels of finance that you may need.

Often available to those with damaged credit: Getting unsecured finance of any sort can be extremely difficult if you have poor credit, particularly in the current financial climate where credit conditions have tightened up. However, those with bad credit usually stand a far better chance of getting a secured loan because of the reduced risk to the lender.

Could result in negative equity: If you take out a secured loan there is a risk that you could find yourself tied into negative equity of property prices fall. This is a situation where you actually owe more on the home by way of mortgage and secured finance than the property is actually worth, so even if you sold it at market value you would not get enough to pay off your mortgage.

Risk of losing your home: An extremely important thing to consider with secured loans is that they are secured against the home, and essentially this means that you risk losing your home in the event that you are unable to keep up with repayments on your loan. It is therefore vital that you ensure that you can afford the repayments, and take into account that there may be fluctuations in the amount of interest and the repayments that you have to make over the term of the loan.

1 comment:

Paula said...

I had to think long and hard about taking out a secured loan. To do so meant using my home as collateral, which is a scary prospect. I worked out what the monthly repayments would be and it was well within my budget, so it was a risk worth taking. I looked at unsecured as well but the maximum cash I could borrow was well below what I needed.