The Advantages and Disadvantages of Secured Loans

By: Marcus Henry

When it comes to personal finance one area that many struggle to fully understand is secured loans. Despite thousands of secured loans being taken out in the UK every year many people are not totally aware of the risks they are taking on.

Many guides throughout the internet scan over the main points than the finance is secured against your property and that people failing to keep up with repayments face the danger or repossession. While these are two very valid points that are certainly worth people knowing by themselves they don't provide enough information for people to truly appreciate what they are getting into.

To add some meat to the bones here are further details on the advantages and disadvantages of taking out a secured loan from a UK lender.

Advantages of Secured Loans:

&bullYour monthly repayments can be lowered by spreading them over a longer period of time (be aware that while this can be advantageous in the short term it could mean you actually repay more in total interest over a longer period).

&bullIf you decide to take out a secured loan rather than remortgage you can avoid the potential problem of losing any special rates currently enjoyed on your existing mortgage deal.

&bullChanging your mortgage to raise extra funds could mean facing large early repayment charges, taking out a secured loan help to avoid this.

&bullA secured loan can be used for any purpose as long as it is legal, raising extra funds via a remortgage may have usage restrictions

Disadvantages of Secured Loans:

&bullThe interest rates on secured loans will be higher than for a mortgage; this reflects the risk involved on the lender's behalf, even though you, the borrower, have provided security against the capital. Another reason is the lender only has what is called a "second charge" on your property.

&bullIf you're planning to use your secured loan to purchase a new vehicle or "white good" i.e. a washing machine you may well be left with the debt long after the usefulness of your purchases has expired.

&bullThe upfront costs such as valuation fees and arrangement fees will increase your expenditure.

&bullPaying off your secured loan each month may leave you short of cash to meet other bills. The temptation to borrow more to meet these demands presents the very real risk of falling into a debt spiral. With the national UK debt well past ?1trillion many UK homeowners currently experience such difficulties.

When considering the possibility of taking out a secured loan it is important to weigh up both the pros and cons to make sure you reach the right decision. If there is any doubt in your mind the best course of action is to speak with an independent financial advisor to discuss your options.

If you feel this form of borrowing is right for you make sure you get the best deal possible, online to scour the market for the best offers currently available.

It's important to remember that by taking out a secured loan you are putting your home at risk, this is a decision you want to make with absolute confidence for your own peace of mind.

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