Secured Loans - not Always a Good Idea?

By: James Quinton

In today's climate of high house prices, many homeowners are considering releasing the equity in their homes with a secured loan on the value of their property.

But as popular as they maybe to fund home improvements, holidays, cars or consolidate unsecured loans, secured loans do come with some hidden costs, for example; although the lower interest rate will reduce your monthly repayments, you will be paying over a longer period of time and ultimately that means paying more interest - this is of course how the lenders makes their money.

There are also several other pitfalls to consider when taking out a secured loan. First of all, and as previously mentioned, you have to give the lender something equivalent to the cost of the loan in order for it to be considered a "secured loan". In the majority of cases this will be your home and as a result, you have to be very sure that you are going to be able to repay the loan otherwise you will run the risk of losing your property.

The second real problem with consolidating existing outstanding debt into one personal secured loan is that once you have done so most credit card providers and others will want to lend you money again. Consolidating your existing debt into a secured loan debt is not a license to go out and spend.

The third problem with a secured loan is that you will likely have to pay fees and costs. These will include a valuation fee to make sure that the value you say the security is worth is correct; if the security is your home, a valuation of the home will need to be done. Also, you'll almost certainly need to pay fees to a solicitor (which will depend on how much the loan is for), to help you with the procedure of giving the lender security over the asset and again, if the security is your house, the lender will take a lien - mortgage - over the property which will only be released once you have repaid the secured loan. You may even find you need to pay costs then - so make sure you look at the amount of fees you'll have to pay carefully before deciding if this option really is worth it.

Secured Loans
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