Secured Loans

Many banks and credit unions make available secured loans for their members. By ‘secured’ they mean that assets owned by you, typically your home, act as collateral so that the money you borrow is secured. This is a cheaper loan option, but it comes with a higher level of risks.

Secured loans are the less risky option available to lenders, as they are protected against the risk of no repayment by the asset which provides the security. For this reason they are generally less expensive for you than an unsecured loan might be; however, for you as the borrower the risk is significantly increased. If you are unable to make the necessary repayments you may face the repossession of your home.

A secured loan might also be referred to as a homeowner or home equity loan, second mortgage, second charge mortgage, first charge mortgage (if it is the case that there is not an existing mortgage) or a debt consolidation loan.

The title deed to the home will indicate that there is a secured loan. Lenders should be transparent about this and all other details of the situation, but if you feel you have not been properly informed you can request more information from the lender directly or seek out a financial advisor, although this would cost you a fee.

Typically, secured loans allow you to borrow between £3000 to £50,000, although this can differ depending on your personal circumstances. Smaller or larger sums may be available from some lenders.

There are many reasons someone might choose to take out a secured loan, some of which include:

  • Starting a business endeavour
  • Funding improvements or necessary repairs on your home
  • Debt consolidation

Interest on the loan is charged differently depending on:

  • The value of the home
  • Your credit rating (store or credit cards that you have defaulted on loans previously, for example, may have an effect on this)
  • Other personal circumstances

The amount you borrow and the size of the repayment you make will impact the term of the loan. The loan term could be as long as 25 years but short-term loans – say for a year – are also possible to get. Worth noting before you decide to pay the loan off early is that this can lead to you having to pay a penalty.

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