Why Take Out a Secured Loan?

By: Nick Cox

A secured loan is a specialist loan that is only available to home owners or mortgage holders. Don't be fooled by the name, a 'secured' loan only provides security for the lender and not the borrower. The loan is protected against your property; if you are unable to pay back the loan then the lender has the right to sell your house in order to get their money back.

Securing a loan against your property should only be considered if there is absolutely no other option available to you. So, what are the reasons for taking out a secured loan?

&bullBorrow larger amounts. The maximum amount you can borrow on an unsecured loan is ?25,000; A secured loan maximum is ?75,000.

&bullBorrow for longer. The duration of a secured loan tends to be a lot longer to that of an unsecured loan. To help offset the cost to set-up, a secured loan will usually last from five to 20 years. Spreading the cost of the loan over a longer period reduces the repayments but it greatly increases the total amount of interest paid.

&bullEasy to Obtain. For obvious reasons, secured loans present less of a risk for the lender. If your credit history is poor then you will have more chance of being accepted for a secured loan than for an unsecured loan.

Some secured loans companies have terms and conditions that penalize you if you try to pay off the loan early. Make sure you read the small print on secured loans before you sign any contracts.

Again, always carefully consider all the other options available to you before signing any contracts on secured loans. If you are in any doubt then seek advice from an independent financial advisor.

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