Can I Convert a Secured Loan in To an Unsecured Loan?

It is a common practice for people to take out a secured loan to pay off other more expensive debts such as credit card debts and store card debts. However, it is not so common for people to want to convert a secured loan in to an unsecured loan. However, this may be possible in certain circumstances. In this article we look at some of the issues.

Since any secured loan you have was initially secured against your home it is not possible to directly convert a secured loan in to an unsecured loan. The lender gave you the loan on the condition that you agreed to use your home as security, and will not be willing to convert it into a an unsecured loan.

There is nothing to stop you from taking out an unsecured loan and using this to pay off the balance of your secured loan. This would be possible if the balance on the unsecured loan was under £25,000. However, this would seem to make little financial sense. The interest rate on an unsecured loan will be significantly higher and you may have to pay penalties if you pay off your secured loan early.

If, however, the balance on your secured loan is more than £25,000 your options will be limited.

If the combined balance on your mortgage and your secured loan is less than your home's value you could remortgage. There is some quite high expense involved with this but it may save you money in the long run if you can find a good deal.

It can be seen that taking out a secured loan is a decision not to be taken lightly. It is a long-term commitment to a large debt, and you risk losing your home if you can not keep up with repayments. So once you commit, you are in for the long haul.

While secured loans are a great way to free up equity in your home while keeping your current mortgage, you should spend the money wisely. Using the money for further investment, in your current home or a second home, can be a very good idea.

If you are heavily in debt a secured loan can also be a good choice as interest rates are very competitive and you can pay off all your debts with one easy monthly repayment. You might though feel you want the money for a luxury like a new car or a dream holiday or home improvements. Remember though that once you take out a secured loan you must be prepared to keep up with repayments in the long term.