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MISSING PAYMENTS ON A LOAN WILL HAVE SEVERE CONSEQUENCES AND MAY MAKE OBTAINING CREDIT MORE DIFFICULT IN THE FUTURE.

 

SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT.

 

Secured loans guide

Secured loans, also known as homeowner loans, offer a way to borrow larger amounts for less by using your home as equity. So if you are looking to borrow say £25,000, secured loans are definitely worth a look – especially as most of the top personal loan deals are only available on up to £15,000.

Loans of this kind are also a good option for anyone whose low credit score makes it hard for them to get a low-rate personal loan. There are risks involved in borrowing via secured loans, though. You could, for example, lose your home if you fall behind with the repayments, so it is vital to ensure that you do not overstretch yourself

This quick guide looks at the pros and cons of borrowing money via a secured loan so that you can make the right decision.

Advantages of a secured loan

Homeowner, or secured, loans are available for amounts of between about £5,000 and £125,000. This makes them a good choice for anyone keen to borrow a larger amount.

The headline interest rates on the top secured loans also start at between 5% and 6%, although the total borrowing cost will often work out higher.

Another advantage is that the fixed monthly payments should make your repayment plan easier to manage.

Disadvantages of a secured loan

The amount you personally can borrow via a homeowner loan will depend on your income, your credit score and your existing credit commitments, as well as the amount of equity available in your property.

Even though a lender offers loans of up to £100,000, you may only be able to borrow a fraction of that amount as a result.

As with personal loans, the interest rate you are offered will also vary depending on the state of your credit file.

Other disadvantages include that your property could be repossessed if you default on the repayments. That’s a hefty incentive to stay on track with your repayments.

Alternatives to a secured loan

An unsecured personal loan offering the chance to borrow up to £15,000 over five years, for example, is a popular alternative to a homeowner loan. Not only does this option avoid putting your home at risk, it may also come with even lower interest rates – if you can limit your borrowing to £15,000 and qualify for the market-leading deals.

However, borrowing more than £15,000 is more difficult – and often more expensive – via an unsecured personal loan.

The only real alternative for larger borrowers is therefore to look into remortgaging to free up some cash. Mortgage rates for those with a large deposit – or in other words a lot of equity – currently start at less than 2%.

But the downsides include potentially high upfront fees and the fact that remortgaging means paying interest for longer on the whole amount owed.

Finding the right secured loan

Secured loans deals, just like those available on other financial products such as credit cards and bank accounts, vary widely. When choosing a homeowner loan, shopping around for the cheapest deal is therefore the best way to ensure that you pay as little interest as possible.

You can do this quickly and easily by using the MoneySupermarket secured loans channel to compare hundreds of different loans from a wide range of lenders.

The Compare secured loans tool can speed up the process of finding the best deals for your circumstances even more.

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