If you are looking to raise a large amount of cash, or you are having difficulty obtaining another type of loan, then a secured loan could be the solution to getting the money that you need.
However, there is one condition that you’ll need to fulfil before a lender will agree to give you the money – you’ll need to own a property that the loan can be secured against. Using your home as collateral will allow you to borrow large amounts at an affordable rate.
What do you need a secured loan for?
Unlike specific loans such as mortgages or car finance, a secured loan can normally be used for any purpose (assuming that it’s all legal and above board).
There are likely to be a number of occasions in our lives when we need to make expensive purchases, but may not have access to large amount of disposable cash. For this reason a secured loan may be the answer. You may wish to make home improvements or you are looking to fund your wedding or honeymoon. You do not even have to use the money for yourself – you may be looking to fund your children’s journey through university or help them out with a deposit for their first home.
Another common way that people use secured loans is for debt consolidation. If you have a number of small, expensive debts, taking out a secured loan could give you just one manageable payment each month, at a lower rate of interest. This may come with some pitfalls however. Whilst secured loans often come with lower rates of interest than personal loans, they are often paid over a longer period of time. Whilst this helps to spread the cost, you could well end up paying more in total over the duration of the loan. You’ll need to weigh up the pros and cons of this against affordable monthly payments.
Could I use an unsecured loan instead?
A secured loan can enable you to borrow larger amounts of money, than with a personal loan. Under UK law, consumers can only borrow up to £25,000 with a personal loan, so if you are looking to fund large home improvement projects, then this may not be an option for you.
Whilst secured loans do not have this limitation, the actual amount you’ll be able to borrow will depend on a number of factors, such as the amount of equity in your property, your credit history and how much you can afford to repay.
If you have a poor credit history, then it may actually be easier for you to obtain a secured loan than a personal loan. By offering your property as collateral, this minimises the level of risk to the lender.
Is a secured loan for me?
Whilst a secured loan can be a very effective way of getting the money that you need, it is not without its risks. Offering your home as a guarantee can be a positive incentive for you to keep up to date with your loan repayments, however, the financial risk if something goes wrong is a great one.
Failure to make the repayments on your loan could result in the loss of your home, so before you take one out you should ensure that you are able to afford it, now and in the future.
SoSmart Money are specialists when it comes to mortgage and insurance advice. Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.