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*This is a collaborative post* Whether you are thinking about a home renovation, looking for a debt consolidation source or just need an injection of money, a secured loan can be the right move. Secured loans (also known as second mortgages or second charge) will sit just below your first mortgage. Secured against your property, they come with many benefits – such as a long repayment period. However, it’s also important to understand the disadvantages of a secured loan before you take the leap. 

Secured loans’ popularity is ever-increasing. A viable option for a lot of property owners, many lenders have introduced it to new homeowners (as long as they have been at the property for at least 6 months) and those with a larger property portfolio. It’s good to know that they are generally only offered to homeowners that have enough equity in their property so that they can cover the amount of money that they have borrowed. 

What Happens If You Can’t Meet The Repayments?

Before agreeing to a secured loan it’s important that you budget out how much you will have to repay each month. Debt is a dangerous way of putting your family’s finances in danger – so you should try to stick to a strict repayment schedule each month. If it simply isn’t viable and you know you won’t be able to afford the repayments, it probably isn’t a good move to apply for one. 

But if you think that you can afford the repayments and you then find that you can’t, what happens? A big risk to be aware of with secured loans is that a lender might request for your house to be repossessed if you can’t make the repayments. They will then sell the property to cover the outstanding amount of money that you owe them. If repossession is on the cards, the mortgage provider will inform you before the secured loan lender rings. 

What Are Some Of The Pros And Cons Of Secured Loans?

Firstly, The Pros:

1) They are available to people with less than pristine credit history

Making them more open to people, it’s good to know that you don’t have to have a perfect credit rating to get one – unlike a personal loan. However, if you have a poor credit rating lenders are likely to consider you as high risk and therefore they might raise the interest amount of the loan. Secured loans are also not always available for those with very poor credit ratings – so make sure that you check your credit rating before applying. It’s also important to understand the impact of a secured loan on your lending profile before applying so that you are aware of its effect on your current credit rating.

2) They have longer repayment periods 

One of the key reasons as to why so many people favour secured loans is the repayment period that comes with it. This will give you longer to pay off the debt, easing the strain of the repayment. 

  3) They have larger borrowing amounts

Another advantage that comes with secured loans is that they are available for much larger amounts than that of personal loans (which usually only go up to around £20,000). This advantage gives you the peace of mind that you can redecorate your house, go on holiday or whatever else you are using the loan for without having to worry that you don’t have enough funds. However, this doesn’t mean that you borrow more than you can afford each month. 

Secondly, The Cons:

3) There is a risk of losing your home 

As mentioned above, secured loans carry the risk of repossession. Therefore it’s important that you carefully consider a secured loan before you take one out. You don’t want to be suffering from horrific debt and lose your house, so make sure that it’s the right thing for your family before you do it.

2) They come with variable interest rates 

Another consideration is that secured loans come with variable interest rates – unlike personal loans which are fixed. This will make the secured loan more expensive in the long term and therefore more difficult to pay off. Before applying for a secured loan, make sure that you enquire about how often the rates vary and approximately how much they will vary by.

3) They aren’t always suitable for first-time buyers

Another issue that comes with secured loans, is that they aren’t always suitable or even available for first-time buyers. Many lenders will only offer secured loans to buyers that have lived in their property for over 6 months or those who have substantial equity. Considering you as high risk, it will be a lot more difficult to find a lender that will agree to give you a secured loan.

Should You Get A Secured Loan or An Unsecured Loan?

When you are looking into loans, an unsecured loan might pop up. But are they better than secured loans? Overall secured loans will give you a longer repayment period and a higher amount than you can borrow; therefore many consider it as the better option for their needs. However, the huge risks that come with taking out a secured loan might be outweighed by the little risks that an unsecured loan offers. For example, unsecured loans don’t require an asset to be held against the repayment of the loan like a secured loan does. But, because of this, an unsecured loan will often come with higher interest rates and fees as it is considered a higher risk by lenders.

*This is a collaborative post*

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