Secured Loans & Homeowner Loans - A Guide

Secured Loans - £25K for 15yrs

A secured loan might allow you to borrow more money than an unsecured personal loan. Your monthly outgoings may be lower with a secured loan. However you should think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

What is a secured loan?

A secured loan is any loan that requires the borrower to provide the lender with some form of security - some item of value which they get to keep if you dont pay the loan back. There are various different types of secured loan 

• The Pawn Shop - Anything from a wedding ring to a computer - take it in and the pawn shop will loan you the amount that it estimates the item to be worth. This estimation will be much lower than the actual value. The pawn shop keeps it as collateral; you get your goods back when you pay back the loan usually within 30 days. If you havent paid back the pawn shop within 90 days your wedding ring goes up for sale.
• Title Loans - The loan provider takes a lien against the title of your car or other asset. This means they have loaned you money and therefore are considered to be legal owners of the vehicle or asset. The down side is that if you dont pay the loan back in time then the lender is able to repossess the vehicle or asset. If you dont pay them back after theyve repossessed as well as pay for the repossession fees then theyre free to sell the vehicle or asset in order to get their money.
• Secured Car Loan - This is a loan you take out for the purpose of buying a vehicle. Remember - if you take out a loan which is secured on your car you need to pay off the loan before you can sell the car.
• Homeowner Loan - These loans are often taken out by borrowers who may have difficulty in raising other forms of finance such as unsecured personal loans because of an "impaired" credit history arrears County Court Judgements etc.. The limit of the potential loan is usually based on the surplus equity in the property i.e. the property value minus the primary mortgage but some lenders will advance loans of 125 of equity at a higher interest rate. The equity is calculated as the value of your property minus your mortgage.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

What is a consolidation loan?

Many people who have a variety of credit card and store card debts and unsecured loans "consolidate" them into a single secured loan repayable over an extended period. The interest rate is usually significantly lower than the rate charged on credit card balances but this depends on the individual borrower. 

However if youre consolidating personal loans as well youre converting a fixed rate into variable rate debt and youre likely to be paying interest for a much longer period and unlike a personal loan a secured loan means you risk losing your house if you cant meet the repayments.

 If you have ever watched daytime TV you may have been amazed at the number of ads for secured loans and some of these might sound very tempting.

 But if you decide to apply for one of these secured loans then its important that you look closely at the rates charged and what this may mean for the total cost of the loan and that you fully appreciate the gamble you are taking. 

Borrowing for longer does reduce the monthly repayments but substantially increases the total interest repaid - as the sums in the table demonstrate!

Moneyextra.com recommends you take independent financial advice before acting on any article

2009-03-09 16:21:38 © Moneyextra.com