Is A Secured Loan The Right Choice?

Secured loans or unsecured loans, which is the best option and what is the difference between the two

? If you are in need of a loan, but you are uncertain which is the best option this article will hopefully help you make the best decison. You need to understand exactly how they both work before choosing which is the right type of loan for you.

What is a secured loan?

A secured 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 property, but can also be your car (logbook loan) and in some cases a boat or any other expensive item that offers enough security to the lender. If the loan is secured on your home you can arrange amounts from 5,000 to 100,000 and the loan can be taken out for terms ranging from 5 years to 25 years. The lender determines how much he will lend you 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 benefits in opting for a secured loan as opposed to 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 made more relevant if you do not have a good credit history. Secured loans can also be taken for bigger sums of money and repaid over more time than unsecured loans, and quite often at cheaper rates. If you are certain that no matter what happens over the term of the loan that you can easily afford the repayments you should probably take a secured loan as the rates will probably be more favourable.

Are there any cons?

Despite the benefits mentioned above, there are a number of concerns, 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 easily afford the repayments now, but in some cases the loan may be taken out for a 25 year term, and if you lose your job, 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 being made homeless.

by: Steve Smith

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