What are the Pros and Cons of a Secured Loan?

Secured loans offer a great way of raising capital fast and offer a very real alternative to remortgaging. In this article we take a look at the pros and cons of a secured loan.

A secured loan differs from a standard personal loan in that the money you borrow is secured against an asset, usually your home.

One of the main advantages of a secured loan is that you can borrow a large amount of money, often up to 100 per cent of your home's value. If you want to borrow a smaller amount, then a personal loan might be a better choice.

Another big advantage is that these loans attract significantly lower interest rates than personal loans because there is less risk for the lender.

Secured loans also tend to be much more flexible than personal loans so you should be in a position to tailor your secured loan product to your specific needs. Consider your personal circumstances and ask your lender for a say in the term of the loan and the amount you repay each month. You should also insist on a facility for making early repayments and taking repayment holidays. Making early repayments can significantly reduce the interest you pay over the full term of the loan.

Secured loans can have a lot of pros if you are self employed or have a poor credit history. While you may be refused a standard, unsecured personal loan, a lender may be willing to offer you a secured loan because it means less risk for them.

A secured loan may also be a good option if you want to consolidate your debts. The interest rates on a secured loan will often be much lower than interest rates you are paying on a credit card debt or an unsecured loan. This could help relieve financial pressure and increase your disposable income. However, you will be paying off your secured over a long period of time so interest rates could be more expensive in the long run.

Unfortunately, there are also some disadvantages to secured loans. Because your secured loan is secured against the home you run the risk of having it repossessed if you fail to keep up with repayments. This, added to mortgage and other repayments, could put you under financial pressure, so consider the implications of taking out a secured loan carefully.

Also bear in mind that secured loans are not a source of very quick cash. Because of the large amounts involved it will normally take a number of weeks to arrange. The lender will do a full credit check and may examine the condition of your home to estimate its current value.

These are some of the main pros and cons of a secured loan.

Whether a secured loan is the right decision for you will depend on your personal circumstances. To help your deliberations, you may like to read other articles on Money Beacon, including 'How to find best rates for secured loans' .