A secured loan is available to homeowners. If circumstances arise which mean the debtor cannot pay back the loan, lenders can force them to sell their property in order to recoup the money. In other words, the lender will grant the loan because they have the security of knowing they will be able to get their money back even if there are problems.
Secured or homeowner loans are easier to get than unsecured ones, especially for those with poor credit scores. What’s more, it is possible to borrow more money through secured borrowing. The other benefit of secured borrowing over unsecured is the borrowing period. While unsecured loans will need to be paid back in between one and seven years, the lending period on homeowner loans is typically between five and twenty years. However, it is worth remembering that although monthly repayments may be lower for longer borrowing periods, the total interest repaid is likely to be considerably more when compared to shorter loan periods.
Borrowing Amounts
If you are planning to pay off existing debts using a loan, carefully work out how much you will need to borrow. Only ever borrow what you need to pay off more expensive ‘above the line’ debts. Never allow yourself to be tempted to borrow extra. In addition, always check the terms of the loan you are going to be repaying. Is there a penalty for early repayment?
These loans are often used for debt consolidation. However, this way of paying off debts may not be suitable for all debtors, so think carefully before making the decision to do so. It is always best to speak to an independent advisor first.
Fixed or Variable Rates
While the majority of unsecured loans will have a fixed rate of interest, secured ones typically change according to the Bank of England base rate and other factors. Always check the terms of the agreement and work out how affordable the debt will be if interest rates go up. Never borrow money unless you are sure it is affordable, both now and in the longer term.
Interest Rates
Lenders offer different rates of interest according to a variety of factors, including credit scores, loan amounts and the length of the agreement. The amount of equity you have in your home may also have an impact.
Compare Loan Prices
Before taking out a loan, take some time to compare prices. All costs, such as valuation and legal fees, will be added to the loan.
One exception is Payment Protection Insurance (PPI), which will ensure repayments continue to be made even in the event that the debtor is unable to work as a result of an illness or accident. This cost is in addition to loan repayments. Compare the cost of PPI by calculating the total cost of the loan rather than the APR.
Getting the Best Deal
Spend some time researching and comparing the various products available before taking out a loan. Your mortgage lender may be able to offer you a good deal if you have a good record of payment. This may not be the cheapest offer available, but it will give you a starting point for comparison.
Comparing Online
There are a number of loan comparison websites which can be used to determine the cheapest deal according to your particular circumstances, including the amount you wish to borrow. Remember to add on any PPI to the total cost if you want it.
Can I Repay Early?
Many loan providers do not allow overpayment or early repayment. If you come into some money and wish to pay the debt off early, you may be expected to pay a penalty. Look out for this in the terms and conditions before signing the loan agreement.
What Could Happen if I Am Unable to Keep Up with Repayments?
If you find yourself in the position of being unable to repay the debt, you could lose your home. If you find yourself in difficulties, it is imperative to notify the lender as soon as possible. They may be able to work with you to re-negotiate payment terms so they are more affordable. Never simply stop paying. Non-payment will immediately have an effect on your credit score, and any letters sent to you may also be charged to your account. If the situation is unmanageable, get in touch with a debt counsellor.
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