Once you have decided to take out a loan, you must then choose whether or not you want or need to secure it against your property.
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Banks and other lenders are often more willing to give you a loan if it is asset backed – especially if the amount you want to borrow is over £25,000. But beware: your home could be at risk if you miss payments on a secured loan.
Loans secured against a property that is already mortgaged are known as second charges, whereas loans secured against a property owned outright with no existing mortgage in place are known as first charges.
Until recently, loans of this kind were often seen as an expensive last resort for those unable to borrow without offering security. One of the main reasons for this was that they were only available through brokers who charged large commissions.
Banks and other lenders are often more willing to give you a loan if it is asset backed
Cheap, unsecured loans are also becoming harder to come by. As a result of the credit crunch lenders are more selective about who they will lend to and certainly those with a less-than-perfect credit history may find they are offered a more competitive rate if they are willing to secure their property against their debt.
Consequently, secured loans are becoming a more viable option, especially if you want to secure a large amount over a long period of time.
That said, for those wanting to borrow smaller amounts over shorter periods, an unsecured borrowing arrangement may well prove the right choice.
Secured loan conditions have become less draconian and easier to understand, but the terms attached to loans of this kind are often more onerous than those for unsecured borrowing.
Remember too that the amount you can borrow, the term available and the interest rate you pay will all depend upon the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances.
Kate Murphy, 6 November 2009
Felicity King-Evans, 16 October 2009
Felicity King-Evans, 23 September 2009
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