“One’s spiritual home is very different to one’s actual home – try not to confuse the two. The latter is a place to hang your medallion. If you’re taking out a secured loan, it’s also known as a homeowner loan – that’s because the loan amount is guaranteed against your house.”
Secured loans are a form of credit that a person can borrow against something they own, usually an asset like their home – In the event the borrower defaults, the creditor or lender can take possession of the asset as collateral, and potentially sell it to regain some or all of the outstanding balance.
The majority of secured loans will have a lower APR, making the loan repayments and interest rates cheaper than a personal or unsecured loan. This is because the lender is risking less when loaning you the money.
If you can get a secured loan you may be allowed to borrow more money than an unsecured loan. Due to the loan being secured against your home, the bank has less chance of losing their investment if you default on repayment.
Secured loans can be an alternative for those with a poor credit rating as it provides the lender with a reason to trust you. MoneyGuru always asks borrowers to consider securing your home carefully; as your home may be repossessed if you do not keep up repayments.
Fixed for term – This is when you pay back the same amount of money each month for a set period of time. This helps you budget for the long-term as you’ll never pay anything other than the agreed amount, providing you keep up with your payment arrangements
Variable rate – Typically, the interest may be lower than that of a fixed rate at the beginning of the loan term, as the borrow takes on the interest rate risk, which means interest rate may well increase in the future. The interest rate paid on the loan can fluctuate in line with the
Bank of England base rate or market fluctuations. This can cause problems with repayments if interest rates increase massively, as it may make the repayments unaffordable. Defaulting on a secured loan could end up with you losing your house.
Short-term fixed rate – This would mean the amount of interest paid on the loan remains the same for a set period of time. After this period ends, the interest rate will revert to the lenders variable rate. This could lead to an increase or decrease in the amount repaid; again, this makes it difficult to budget for.
If you don’t want to secure their loan against your property because of the risk, you could take out an unsecured personal loan.
MoneyGuru Smart Loan Search can help you find the best loan deal for your financial situation. With just one application, you gain access to our extensive panel of lenders.
As with all forms of credit, MoneyGuru always suggests you make sure you can afford the repayments. Take into account anything that could affect your ability to repay the loan. If you do find yourself in trouble, consult the websites below for help and advice: