Articles

Secured Loans

Secured Loans Buying Guide

Unless you are very blessed, you will at some point in your life have to take out a loan. You may need to buy a new car, update your kitchen, take a much needed holiday or purchase some property.

To the average consumer every loan might seem the same, but there are many different kinds of loans on the market. The aim of this short guide is to explain what a secured loan is and what the difference is between it and an unsecured loan.

What exactly is a secured loan?

A secured loan is taken out against an asset; usually a house. Normally a lender would only lend over the value of £25,000 if the loan is a secured loan. It’s perfect as lenders feel more secure in knowing there is a fixed asset to claim back if repayments are not met.

For loans under the value of £25,000 you can normally access them via the unsecured loan route. In the case of a secured loan you will have to sign a personal guarantee though, which means the lender will be able to come after you personally to claim the money they loaned you. A secured loan might seem like the perfect way to access extra capital quickly but it is important to consider a few important factors.

Can you afford the repayments?

You shouldn’t commit to a loan unless you’re sure you can afford the repayments; ensure that you have stable employment that should continue for the duration of the loan and a back-up plan to cover every eventuality. And don’t forget repayments will include interest so this needs to be calculated into if you can truly afford the loan.

Is it worth the risk?

If other people rely upon the asset you’re borrowing against you need to be prepared for the worst case scenario of losing the item; if it’s a family home it’s not worth borrowing against unless there’s a certainty all payments will be covered.

How much money do you really need to borrow?

Lenders might be quick to offer you more money than you really need; whilst it’s tempting to take the maximum money available remember that you will be paying back the loan with interest. A detailed budget before approaching any lenders will enable you to see exactly how much money you need to obtain and at what cost you can afford to pay it back.