Secured Loans

How to choose a secured loan...

These loans are can be a great way to borrow a large sum of money at a low interest rate, simply by using some of the cash that's lying dormant in your property.

Read on, and follow ChooseMoney's guidelines to see how to maximise the potential of a secured loan.

These loans are good for:

Those with equity
Equity, or more specifically 'free' equity is the difference in price between the value of your property when you bought it and its current market value. The drastic and ongoing rise in property means that a lot of people will have large amounts of free equity in their home at present.

The larger the free equity you have the more you can potentially borrow. For example, if you bought your house for £80,000 and its now worth £300,000, you have £220,000 of equity that you could potentially borrow (depending on how much the bank are willing to lend you).

N.B Don't despair if you have very little equity in your property, as many companies will lend over 100% of your property value.

Poor credit history
The main advantage with these loans is the fact that you can pick them up even if you have had a bad financial history. Even if you have multiple CCJ's and bankruptcy you could still be eligible for a secured loan!

Lenders are far more likely to lend you large amounts of money at good rates if they know that they get your house if you cant pay!

Thankfully, you will be pleased to know that any reputable company would much prefer you to repay the loan than to take your property. This isn't just out of the goodness of their hearts, but due to the fact that it is much more profitable for them to keep you paying lots of interest for as long as possible - not to mention the costly and time consuming process of eviction and property resale that they would incur if your house was repossessed.

Know your options
Companies offering these sorts of loans will talk them up as very safe and affordable options, placing particular emphasis on the amount you can borrow and the length of time you can pay the money back in, whilst conveniently failing to mention any downsides.

Make sure you have thoroughly checked out all the options before signing up for a secured loan to make sure they are the right option for you.

• Unsecured loans
  Although you wont be able to borrow as much, unsecured loans will be cheaper and you wont have to put forward any collateral to cover the payments. (If you have been rejected from these in the past check your credit history is correct with a referencing agency)


• Remortgage
  It is possible, particularly if you have a flexible mortgage, that re-mortgaging your property may release some of the equity needed.


• Credit Card re-jig
  If you seem to be frittering a lot of money away each month on expensive credit card interest rates, why not see if you can consolidate your debts on a 0% credit card. (See our section on 0% balance transfer credit cards for help)

These loans are unsuitable for:

Unstable finances
If money is unsteady and you have often struggled to repay past borrowing, due to fluctuating incomings and erratic outgoings, then it's probably unwise to get a secured loan.

Borrowing or new purchases
Despite the fact that these loans can be used for pretty much any purpose, and because of the high borrowing and long repayment possibilities, these loans may seem very attractive for a multitude of uses; however, you should look carefully at what you need to borrow the money for to make sure you aren't needlessly spending money that isn't yours.

Look for:

The best deal
Before you go ahead and sign yourself into a contract for the next 2 decades, make sure you are getting the best deal possible. A slight drop in the interest rate will take chunks off your overall repayments.

ChooseMoney recommends comparing at least 3 companies before you make a decision. With the power of the Internet and the resources here at ChooseMoney that should be an easy feat to accomplish.

Watch out for:

The tricksters
We've all seen, and probably laughed at, the daytime TV adverts that paint a rosy picture of families playing on the beach, laughing and basking in the glory of their newfound freedom from crippling debt.

It is easy to scoff at these idyllic images and then fall into the trap of borrowing 'that bit extra'. This is especially easy to do when being harassed by pushy lenders encouraging you to take a bit more 'just in case'. Avoid borrowing more than is absolutely necessary at all costs; make a budget plan of exactly how much you need and stick to it rigidly.

Don't forget:

To make your repayments
It sounds obvious, but the repayments on a secured loan should come ahead of all other loan and credit card borrowing.

To get in touch if you get into difficulty
As soon as you find yourself in a situation whereby you cant make the payments, or you are beginning to struggle get in touch with the lender.

As mentioned above, they would much prefer that you repaid the loan than loose the roof over your head. Speak to them early on and they are likely to be sympathetic and possibly even rework your payment plan.

Compare secured loans