Secure Loan and may more tips and guide to aid your option
In a direct and simple definition, a secured loan is money you borrow secured against an asset you own, usually your home, and most people always wants secured loan
Of course definitely, interest rates on secured loans tend to be lower than what you would be charged on unsecured loans, but they can be a much riskier option.
And surely if you fall behind with payments, your asset might be repossessed, so it’s important to understand how secured loans work and what could happen if you can’t keep up with your payments.
So if you want to borrow money, chances are you’ve already started scoping out options that could work for you. Loans are a popular choice for many consumers, and they come in two forms – secured and unsecured. But the differences between the two aren’t always clear.
In short, secured loans require collateral while unsecured loans do not. You’ll also find that secured loans are far easier to qualify for and generally have lower interest rates as they pose less risk to the lender.
Meaning of Secured Loan
Secured loans can be useful if you need to borrow a large sum of money, typically more than £10,000.
The term ‘secured’ refers to the fact a lender will need something as security in case you can’t pay the loan back. This will usually be your home.
Some loans might be secured on something other than your home – for example, they might be secured against your car, jewelry or other assets.
Secured loans are less risky for lenders because they can recover the asset if you default, which is why interest rates tend to be lower than those charged for unsecured loans.
But they are much riskier for you because the lender can repossess the secured asset – for example, your home – if you don’t keep up repayments.
The Pros and cons of secured loans
- You can usually borrow a bigger sum of money than you would be able to with an unsecured loan.
- You’ll normally pay a lower interest rate than with an unsecured loan.
- It might be easier to be accepted for a secured loan than an unsecured loan if, for example, you don’t have a good credit history or you’re self-employed.
- The loan is secured on your home or other asset, which you might lose if you can’t keep up your repayments.
- Secured loans are often repaid over much longer periods than unsecured loans. So, although your monthly repayments might be lower, you might be paying it off for up to 25 years. This means you’ll pay more overall in interest.
- Some loans have variable interest rates, meaning your repayments could increase. Make sure you know whether the rate is fixed or variable.
- Some secured loans have expensive arrangement fees and other charges. Make sure you factor this in when you work out how much the loan is going to cost you. Arrangement fees and other set-up costs should be included in the Annual Percentage Rate of Charge (or APRC – this is similar to the APR for unsecured loans). Use the APRC or APR to compare products.
Home equity or homeowner loans – borrowing more from your mortgage lender
You may be able to get a further advance on your mortgage – you borrow an additional amount of money against your home from your current mortgage lender.
This might be a useful option if you’re looking to pay for some major home improvements or to raise a deposit to buy a second home.