Secured loans are when the loan applicant uses an asset, normally a house or car, as security when applying for a loan. Normally, applicants will use their home as security as it is the most valuable possession that they own, which is why secured loans can sometimes be referred to as homeowner loans or even home improvement loans.
They are generally only available to homeowners willing to use their home as security, but it is also possible to use your car if it is valuable enough.
Secured Loans – What Can They Be Used For?
There are many uses for secured loans in the UK, for example many applicants have used the loan for the following,
- Home improvements
- Debt consolidation
- Starting their own business
- Weddings
- School or University education for their children
- Buying a new car
Advantages of Secured Loans
UK homes
There are several advantages to applying for a secured loan, in no particular order,
- Generally there will be lower rate of interest offered by the lender
- If you have been refused for an unsecured loan then this may the best or only option that you have
- Secured loans are available for up to £75,000 and sometimes more
- Some lenders allow for over payment, allowing your to pay off your loan a little more quickly
- Secured loans can be repaid over a longer period
- Self employed applicants normally use this option, but must use their home as collateral
Disadvantages of Secured Loans
Just as with most things in life there are pros and cons to everything, including secured loans. Here we have listed some of the potential disadvantages of these,
- A longer term to repay also means that the debt will cost you more as the interest payments add up
- If you default there is a chance that you could lose your home
- You must have built up some equity in your home
If you successfully apply and are accepted for a secured loan, you will simply repay the amount over the agreed length of time as you would with any any other loan type. However, if you default on the loan repayments the lender could seize the asset and sell it to try and recoup the initial loan amount.
If you find yourself in the situation that you can’t repay your loan then you should speak to your bank immediately to inform them. They are normally understanding and could either provide a ‘repayment holiday’ or reduce the repayment amount for a period of time while you get back on your feet again. After all, all they want is their money back.
You can read more information on secured loans here and also on Direct Gov’s site.
Getting The Best Secured Loan Deal
Shopping around is a must. Don’t just accept the first offer that you are accepted for and don’t accept that offer. There is normally some additional haggling that can be done to lower the interest rate offered before you accept, especially for larger amounts and those with better credit ratings.
