Secured Loans – Why Lenders Are Only Too Happy To Offer You A Secured Loan

There are many different types of loans on offer, but the majority of standard or personal loans are classed as unsecured. To obtain an unsecured loan you need to be able to demonstrate your ability to pay it back in full, otherwise the lender will be unwilling to lend you the money. A secured loan on the other hand, has a very particular meaning. A secured loan is generally only available to people who own their own houses. This is because a secured loan is secured against your property. In other words, if you default on the repayments, the lender can have your house sold off to pay back the debt.

The reason secured loans should not be entered into lightly is because when you take out a secured loan you are risking your home. That is surely a sobering thought for anyone.

What Are The Attractions of Secured Loans

The fact that a secured loan is secured against your property makes the lender far more likely to make you a loan in the first place, because they know that if the worst comes to the worst, they can definitely get their money back by selling your house. For this reason, lenders are more likely to offer secured loans even to people with poor credit ratings. In fact lenders often present them as the ideal solution for people with credit problems who can’t borrow money by other means.

The other perceived advantage is that because of the link to your property value, lenders will usually be happy to lend larger amounts.

Secured loans are usually over longer periods than unsecured loans, so the monthly payment amounts look smaller. Well, they are smaller, but when you consider how much longer you are paying them for, you do of course end up paying much more. The longer your loan period, the more interest you pay.

Other Considerations With Secured Loans

Most personal or unsecured loans will have a fixed interest rate for the full term of the loan, so you know exactly what your monthly payments are going to be. Secured Loans are usually different in that they tend to have variable interest rates, like a mortgage. For this reason, you need to be very sure that you can still afford to keep up repayments if there is a rise in interest rates. Remember, you house is at stake, so you need to be very sure about this. Read the lender’s terms very carefully when it comes to interest rates that they will be charging.

If you are thinking of using a secured loan to consolidate your debts, you may be encouraged by the lender to use it to pay off every one of your existing debts. Apart from the fact that I wouldn’t advise consolidating your debts with a secured loan anyway, you should at least make sure you only use it to pay off debts that are at a higher interest rate than the secured loan that you take out. A single repayment may seem convenient, but it is not worth it if you are going to end up paying more interest in the long run.

If you are seriously considering taking out a secured loan, the first thing to do is prepare a Financial Statement. This will help you understand exactly what position you are in now, and show you how much you can afford to spend on monthly loan repayments each month. Online guides are available to take you through this process.

I hope you will understand how serious the possible consequences of taking out a secured loan can be, and that you will treat the soothing sales pitch of lenders with the caution they deserve. Just remember that you can lose your home, so do NOT rush into anything, be VERY SURE that you can afford the repayments, and DON’T DO IT, if you have any other option.

You can find more information about secured loans and a list of recommended secured loan lenders here.