When secured loans make financial sense

Annie Shaw wrote a great article on “When secured loans make financial sense” this one really hit home for me as iI was able to relate better to the circumstances that is afflicting many people like myself.

Ms. Shaw mentions how:

Secured loans are often seen as a last resort for borrowers – and indeed they should be approached with care.

However, as we all know most times specific circumstances arise where a secured loan may make a lot of sense.
If one needs a loan, there are a number of ways to borrow. One of the more simple and ‘easy’ ways is to increase your mortgage, while the traditional route to borrowing for shorter-life items – such as buying a car or a holiday – is an unsecured loan. I.e.: There is no risk to your home if something goes wrong and you cannot repay the debt.

But, many times these methods of borrowing are not suitable for ones needs, then is the time to consider a secured loan as an option. One word of caution: make sure you keep your eye on the proverbial “ball” and make sure you understand the terms completely. Remember this loan is secured on your house, if you fail to keep up the repayments you could lose your home permanently.

* This week’s best rates of £10,000 unsecured personal loans
* This week’s best rates on £20,000 secured personal loans
* This week’s best mortgage rates

Annies Article continues:

Trapped in a mortgage but need more money?
Over the past few years, many people have locked themselves into fixed-rate mortgages – a sensible move, as interest rates have been rising.
However, these loans may not allow further borrowing without additional fees and charges. In the worst case, people locked into these loans who need to borrow more might have to redeem the whole loan and remortgage, thereby incurring early repayment penalties as well.
A further problem for would-be borrowers is that, as interest rates have been rising, many lenders are becoming more cautious, and may not be prepared to lend more to people who have borrowed the maximum that their lending criteria permit.
Recent research has shown that more than 460,000 applicants have been turned down by mortgage lenders in the past six months, as interest rate rises have struck.
Yet, at the same time, rising house prices have meant that many people may have equity in their home, and if they do not need to move home, a secured loan could be an ideal way to release cash for other needs, particularly as secured loans can be cheaper than unsecured loans and other forms of borrowing.
Robert Sinclair, director of the Association of Finance Brokers, says: “Mortgage brokers are increasingly using secured loans as an appropriate part of their advice to customers. It is also good to see that in many companies this is seen as a specialist area and they are encouraging specific individuals to focus on this sector.”
One of the advantages of a secured loan is that payments can be scheduled for as long as 25 years to make monthly payments smaller. But, do remember that the longer you take to pay off the debt, the more interest you will pay in the long run.
Useful if you’ve got bad credit
Secured loans can also be useful for those who have County Court Judgments against them. Lenders are usually more willing to grant secured loans to those with a poor credit history, as the loan is backed by the property.
A secured loan may also be useful for debt consolidation. The rate is almost certain to be less than credit card debt, for instance, but do remember that, unlike with card debt, the lender can enforce repayment of the debt by repossessing your home if you default.
Follow the secured loan rules…

* Remember that if you don’t repay the debt, your house could be at risk.
* Rates are generally variable and, unlike fixed-rate unsecured loans, will rise if bank rates go up.
* Shop around for the best rates.
* If you are being refused loans by several companies, possibly because of a poor credit history, consider why this may be. It may actually be sensible for you not to borrow.
* If you have financial problems, talk to a credit counselling service. Never pay for debt advice.

If you go ahead with a secured loan, look carefully at the price of extra insurances, such as payment protection insurance . If you feel you need this product, don’t necessarily buy it from the company you get your loan from. You may be able to buy it more cheaply elsewhere.

Thanks to Money Extra and MSN for such great content!

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