Secured loans poor reputation and much of it is not undeserved. Consider the high-APRs, the cheap-looking TV advertising and the hanging threats of repossession, and it is easy to see why borrowers are put off. Nevertheless, there are some situations in which secured loans can be a useful product.
So, when might a secured loan be a good option? Secured loans can be available to most customers who have a property to secure. The result of this is that a secured loan can be financial lifesaver for a homeowner with adverse credit. As a loan is secured against a property, there is scope for larger borrowing than with an unsecured loan, and the repayment period can be made longer. These give secured loans additional flexibility. Also secured loans can be an alternative to re-mortgaging to free up equity. Because of the fees involved in re-mortgaging, a secured loan may actually work out cheaper, but this does depend on the terms of the mortgage.
Unfortunately, secured loans often have very high APRs. It is not always the case. Quite a number of secured loans have very competitive rates, especially in mid-market. However, the extremes of the market can have the disreputable very high APRs, sometimes over 40%. As ever, research is the key to make sure that the APR is not excessive. There are thousands of loan products out there, so there is no need to choose a bad one from just a few.
Of course, the bottom line of a secured loan is the property of the borrower. So, the home really is at risk if the loan is not repaid, and the property can indeed be repossessed. That’s one thing to be aware of. Another is that a secured loan is not a quick fix. Although secured loans can be seen as an attractive instant fix to borrowers who already have debt problems, categorically, they are not.
With a secured loan, the borrower is still in debt, whether other debts are paid off or not. Outgoings will need to be reduced. A secured loan does not get rid of debt.
In a nutshell, secured loans give you the opportunity to borrow more money or over a longer term by using your home or another, probably large, asset as security.
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