Is Taking Out a Secured Loan to Pay off Debt a Smart Move?

Secured loans are one of the cheapest forms of credit available on the UK loans market today. Because of this they are a popular choice for people wishing to consolidate their debts. In this article we ask if taking out a secured loan to pay off debt is a smart move.

Credit in the UK has never been more easily available and Britons have never been more in debt. In fact, current debt levels represent about £17,000 for every man, woman and child in Britain.

Unfortunately, many forms of credit can be very expensive, with credit cards and store cards being the worst offenders. Because of this, it can be a good idea for many people to take out one cheap loan to pay off more expensive debts.

Taking out a secured loan to consolidate debts can be a good way to ease financial pressure, with the added convenience that you will have to make just one repayment each month. Interest rates are much lower than many other forms of credit and, because repayments are spread out over a number of years, your monthly repayments will be much lower. At the time of writing a typical secured loan will cost you about 9 per cent APR, while most credit cards charge in the region of 20 per cent APR.

However, this does not necessarily mean that you will save money in the long run. While the interest rates on your loan may be low, the fact that you are repaying over a longer term may mean that you pay more interest in the long run, so do your calculations carefully.

This does not mean that a secured loan to pay off your debt is not a smart move. However, you should only borrow enough to pay off your other debts. Try not to be tempted to borrow more. Also, keep the term of the loan as short as possible. Taking even a couple of years off the term will save you a lot in interest repayments.

Also, try to find a find a secured loan product that is flexible and will allow you to make early repayments. Most of us find that as time goes on our financial situation improves as our salaries go up or we move on to better paying jobs. If you can afford to pay back some of your loan early without penalty you could save yourself a lot of money.

A secured loan is one way of using your status as a homeowner for debt consolidation. Another option would be to remortgage. This is worth considering as you may be able to find a better deal than your existing mortgage while still raising the extra capital to consolidate your debts at a lower interest rate. Be aware of the pros and cons of remortgaging and in particular the costs involved.

Whichever option you choose, be sure to undertake research or engage such as a broker to help you. Interest rates remain relatively low so there are still some excellent deals out there.