Basic advice for secured loans

If you own your own home you are an in excellent position to raise capital and avail of cheap credit in the form of a secured loan. In this article we explain what secured loans are and give some basic advice.

Let us first explain what a secured loan is. Basically, it is a loan that is taken out while using your existing home as security.

People take out secured loans for a number of reasons. Some want to raise capital to extend their homes or treat themselves to a new holiday or a car, or even to raise money to invest in more property. Others take advantage of secured loans' relatively low interest rates to pay off existing debts.

Secured loans have certain characteristics. As mentioned, you must own your own home or have another valuable asset to put up as collateral. Because of this, the amount you can borrow is high, often up to 100 per cent of the value of your home. There will also be a minimum amount you can borrow with this type of loan, often around the £10,000 mark. But this will vary from lender to lender.

While secured loans can be a great source of cheap credit, they can also have their pitfalls. Here are some points to consider:

• Remember that you run the risk of losing your home if you fail to keep up with the loan repayments so it is vital that you do not borrow more than you can afford to repay. Failing to keep up with repayments will also damage your credit rating.
• Shop around. There are scores of secured loan products available in the UK. The annual percentage rate (APR) is a good indication of what the best product will be, but be sure to watch out for introductory rates and other fees and charges. If you do not have the time to compare products yourself, talk to leading lenders and brokers and get their help.
• Keep the term of the loan as short as possible. The longer the repayment period the more interest you will pay. Even reducing the term by a couple of years can make a big difference.
• Do not apply for more than one loan at a time. Also, it is best not to apply until you are confident that your application will be successful. Failed or cancelled applications can reflect poorly on your credit rating.
• You should consider taking out repayment insurance that will cover your repayments if you become unemployed or ill.
• Finally, it is worth repeating that you must not default on repayments. If you run into financial difficulty ask for a repayment holiday. If this is not possible then approach your lender and explain your situation. Most will be happy to help until you get back on your feet.

These are some points to consider when getting a secured loan. However, loans of this size should not be taken lightly so be sure to do as much research as possible and get advice from the expert brokers or lenders before applying.