Is A Secured Loan The Right Choice?
Is A Secured Loan The Right Choice?
Is A Secured Loan The Right Choice?Secured loans or unsecured loans, which is the most sensible choice and what is the difference between the two? If you are in need of a loan, but you are undecided which type to chooseis best for you this article will hopefully help you make the best decison. You need to understand the pros and cons of both before making your decision about which is the right type of loan for you.What is a secured loan?A secured homeowner loan is a loan that is offered by a lender because the borrower puts up some sort of security to guarantee that the lender will get their money back. This is normally your home, but can also be your car (logbook loan) and in some cases a boat or any other high ticket item that offers enough security to the lender. If the loan is secured on your home you can borrow amounts from 5,000 to 100,000 and the loan can be paid back for terms ranging from 5 years to 25 years. The lender determines how much you can borrow and at what rate based on the equity you have in your property (the equity is calculated by deducting the amount you have outstanding on your mortgage from the value of your home).What are the plusses?There are a number of pros in opting for a secured loan rather than an unsecured personal loan. The main benefit of a secured loan is the fact that you are more likely to be approved because the lenders feel more secured that they will not lose their money. This is particularly the case if you have a bad credit history. Secured loans can also be taken for larger amounts and repaid over more time than unsecured loans, and quite often at more favourable rates. If you are certain that no matter what happens over the term of the loan that you can easily afford to repay the loan you are generally better of with a secured loan as the rates will probably be more affordable.Are there any cons?Despite the benefits mentioned above, there are a number of issues, the main one being the fact that if you do not make regular repayments you may well lose your home. Because the loan is secured against your home if you do not keep up with the payments the lender can recover their money by forcing the sale of your property. You may well be able to make the repayments now, but in some cases the loan may be taken out for a 25 year term, and if you are made redundant, taken ill or your income is reduced for any reason, you may be setting yourself up for some serious financial problems. If you do decide to take out a secured loan it is probably advisable that you consider taking out some sort of income protection independently of the loan to make sure that any unforeseen problems do not result in you losing your home.