Secured finance
Secured loans enable homeowners to secure a loan using the equity in their property as security. There are advantages to taking out a secured loan, but they come with one major risk.
What is a secured loan?
Also known as a homeowner loan, the security of a secured loan applies to the lender and not the borrower. If the borrower defaults on the loan, the lender recoups their losses by selling whatever has been used as security. In almost all cases, this is the borrower's home, and that's why, if you're considering this type of arrangement, you need to be sure you can meet the repayment schedule.
Otherwise, you're at risk of losing your home.
Because secured loan lenders can potentially benefit from secured loans if a borrower fails to keep up with repayments, the risk is entirely the borrower's responsibility. Secured lenders tend to be more likely to lend to those with a history of bad credit, consolidating debts into a loan with more manageable terms.
Why do borrowers take out this type of loan?
Secured loans offer several potential benefits to clients, including:
- An option to borrow large amounts
- Longer repayment terms
- Affordability calculated on multiple incomes
- Interest rates tend to be lower
Borrowers with a reasonable credit score will qualify for this type of loan fairly easily. And, with an option to borrow far greater sums of money with lower repayments, they can look quite attractive to many borrowers.
Because of the higher loan amounts, they're often popular with those who need to borrow money to make home improvements. For all other debts it's generally recommended that a personal loan is a better option.
However, the set up costs are often higher, and the terms longer, so the total amount to be paid back is substantially greater than in other loan types. They might appear more manageable, but be prepared to pay more for the facility.
Always remember: Think carefully before securing a loan against your property. You need to be certain that you can meet your monthly repayments and never find yourself in a situation where you could lose your home.
Alternatives to an unsecured loan
Nobody should lose their home just because they ran up a few too many credit cards or struggled to pay their bills through a difficult time.
Unsecured loans (personal loans and credit cards) are a safer option for borrowers, as the greatest risk they take from defaulting on those is damage to their credit report and possible court action. As worrying as they sound, they're not as severe as losing your home, the equity you've earned, and somewhere to live.
At no point with a domestic loan is the borrower likely to lose their home, unless their financial problems cause them to default on their mortgage payments too.
If you're in a position where conventional loans aren't going to be enough or impractical for your debt amount, consolidating existing borrowing by adding those other debts to your existing mortgage is a safer option.
Can this type of debt consolidation save money?
If managed correctly, and by securing a favourable interest rate, it could. Secured loans are generally provided with variable interest rates, which can fluctuate higher or lower than a fixed rate that comes with a personal loan or credit card.
To achieve the ideal rates, for a personal loan or a secured option, you'll need to have a good credit rating. With a low credit score, you might not qualify for the rates you need, or even the type of loan you're hoping for.
Talk to CLS about an unsecured loan
If you think a secured loan could be a good finance option for you, our expert mortgage advisors are at hand 7 days a week to meet or chat with you. They will assess your personal circumstances and compare a wide range of secure homeowner loans that suits your individual needs at no cost to you.
