What is a secured loan?
A secured loan is a loan which only mortgage holders/property owners can take out. If you fall behind on payments, the lender can forcibly sell your house in order to pay back the debt. Lenders can get a court charging order for unsecured loans in order to take your house, but this is very difficult and most lenders will not go this far.

Secured loans are generally easier to obtain because there’s always the ‘security’ of your home if you fall behind in your repayments. This means that you have a better chance of getting a secured loan than an unsecured loan if you have a poor credit rating as there is less risk to the lender. Secured loans can also be much larger than an unsecured loan – typically, unsecured loans are only available up to £25,000 whereas a secured one can be up to £75,000.  The lending period is also generally longer – unsecured loans are usually one to seven years whereas secured are five to twenty years. This means the monthly repayments are generally less but the total interest charges will be much higher.

Secured loans should always be your last option. Never consider a secured loan for a new purchase – you should only consider one if you need to cut other debt costs.

How much should I borrow?
How much debt do you have? Make a total of everything outstanding with interest rates. Insert the secured loan where the interest rate fits in. The secured loan should only be used for debts which have higher interest rates – if you pay off those with lower interest rates, you will be paying out a lot more money.

Flexible or Fixed?
Secure loan interest rates are normally variable. This means the rate can go up as well as down. Ensure that whatever rate your loan is, you could afford the repayments if the rate went up. Be conservative with what you can pay off to be sure.

Fixed rates are normally only available for limited periods. Check to make sure you know how long the period is and what rate you will be paying when the limited period ends.

Check to make sure you know all the charges associated with the loan. This includes if you overpay, or you pay the entire sum off early. Never borrow more than you need. Take as little lending as possible.

The interest rates you are offered will depend on your personal circumstances – this includes your previous credit history and your annual income. It is worth shopping around as different lenders assess your circumstances in different ways.

Where can I look for a secured loan?
Start with your current mortgage lender. They may offer you a good rate if your payment history is good. It may not be the cheapest though, so shop around.

Check the internet – there are many price comparison sites. You can input your details and they will show results from all the top lenders making it an easy way to view loan companies side by side.

It is a lot more work if you do not have access to the internet. It is best to either find a web-café or ask a friend with internet access to help you out. If these are not options, you will have to call each lender in turn and ask them to quote you.

Can they really take my home?
Simply, yes. However it is usually less profitable for lenders to repossess your home than to get the debt repaid, so this will only be used as a last resort. It you are unable to make a payment, or you are struggling, get in contact with your lender. You may be able to lower your monthly repayments or take a repayment holiday until your financial situation improves. Missing even one payment has a negative impact on your credit score so it is always best to try and speak to the lender before this happens.

In the worst case, the lenders will repossess your house. The will petition the court to show your have been unreasonable – refusing to sign for letters or not adhering to your payment schedule. After they have sold the property, they will take what you owe them and return any monies left over to you.

Click here for a list of secured loans.

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