The Ups & Downs of Secured Loans

By: Liam G

In the past few years a booming housing market has meant many homeowners across the UK have benefited from the increasing equity in their homes.

This equity has given homeowners greater financial leverage, allowing many of them to use this to obtain additional affordable credit, notably secured loans.

Eligibility and the amount that can be borrowed with secured loans will depend on a number of factors. They include:


  • The level of equity in your home

  • Your income and outgoings

  • Your credit rating

  • Your employment status

  • Length of time living at the same address

  • Length of time with the same bank account



Although secured loans can be an excellent means of obtaining a large amount of finance, it's important to note that they are not without their disadvantages. These, along with their advantages have been outlined below.

Advantages of Secured Loans

  • Large levels of equity in many homes today make it easier than ever for homeowners to secure finance against their property

  • Homeowners can benefit from a great amount of borrowing power with regards to the amount of equity they have. The actual amount that can be borrowed will vary from lender to lender, with some offering secured loans for the full amount of equity, others offering a percentage and more recently loans exceeding the amount of equity are becoming more widely available

  • Repayment periods can be up to 25 or even 30 years, which can lower monthly repayments

  • As the loan is secured against the borrower's home, the lender has this added security which generally makes them more accessible to bad credit applicants



Disadvantages of Secured Loans

  • Although initially, the long repayment term can appear a very appealing option, it does mean that you would be tied into such a large amount of debt for a very long time. Attempts to pay off the loan earlier than planned or switching to another lender often results in hefty penalties

  • Along the same lines, longer repayment terms equate to larger amounts of interest being owed. These are issues that should be discussed with the lender before tying yourself to the loan

  • The volatile nature of the housing market means significant and/or continuing drops in housing prices could leave the borrower with negative equity. This is where the value of the property is lower than the outstanding secured loan

  • The largest risk associated with secured loans is the possibility of losing one's home. Defaulting or continually falling behind on repayments will give the lender the legal power to pursue such action



The above points made outline what can be expected from a secured loan. As with any financial commitment, it is vital that much consideration and discussions with potential lenders is taken prior to committing to a secured loan.

A consultation with an independent financial adviser (IFA) is also recommended before making your final decision.

Secured Loans
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