If you’ve found yourself in a bit of a financial pickle or have your sights set on a big buy, you may be meditating on the subject of secured loans. A secured loan is one of the most popular types of personal loan.
Before you get over-giddy and sign up for the first one you can find, take a minute to unshroud the secrets of the secured loan with our guide below.
What is a Secured Loan?
A secured loan is covered – or secured – by an asset owned by the borrower. This asset then becomes a secured debt for the of the loan.
- Usually, have lower interest rates than unsecured loans
- Can have a fixed or variable rate of interest
- Can have a fixed or variable pay-back time
A secured loan allows you to borrow a fixed sum. They are often used for the likes of home extensions, or perhaps the need for a new car at short notice. You then pay this back gradually, which can mean lower monthly payments than many other loans. How much you can borrow will depend on your individual circumstances, but many providers offer loans for up to £35,000, over periods of five to 20 years.
Secured loans tend to offer lower interest rates because they’re secured against an asset, such as your property. Of course, this means you risk losing your home if you don’t keep up with your repayments, which isn’t an attractive prospect for anyone and is something that deserves a serious ponder.
You definitely shouldn’t commit to a secure loan if there’s any question over whether you will be able to repay it. If you’re sure you can, when you sign for a secured loan you will pay your provider back over an agreed time period, along with the added interest charged for the loan.
Check Interest Rates
Many secured loans come with variable interest rates, which means the amount you pay could change. This has the potential to put a real spanner into your carefully constructed budget. If you choose a loan with variable rates, you’ll need to be confident you could handle a rise in repayments.
You should also be aware of fees that could add a considerable amount to the overall fee you pay back. Many charge an arrangement fee for the setting up of the loan. They can also ask for early redemption fees if you settle the loan early or make overpayments.
Think a secured loan is not the loan for you? See our info on which personal loan is best for me or alternatives to a personal loan.