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Introduction To Secured Loans

A secured loan is a personal loan where you must use a high value possession, such as your property, as security against the loan.

The benefits of secured loans

If you have experienced financial problems in the past and have damaged your credit rating as a result, a secured loan can offer you the chance to borrow money you would not otherwise have been able to acquire. Furthermore, as you must offer your lender a high value possession, you will usually incur a lower interest rate than with an unsecured loan, as your lender will be able to mitigate the risk of lending money to you.

In comparison to unsecured loans, secured loans enable you to borrow larger sums of money and repay your money over a longer period of time, usually up to 25 years. Borrowing over a long period of time will reduce your monthly loan repayments. However, it will substantially increase the amount of interest you pay over the course of your loan.

The drawbacks of secured loans

As a secured loan requires you to offer a high value possession as security, your lender will be able to stake a claim on said possession if you fail to keep up with your monthly loan repayments. You must therefore put a lot of thought into taking out a secured loan, as if you do not meet the cost of your repayments and you have used your property as security, you could lose your home.

Some secured loans have variable interest rates, which means that your monthly loan repayments could increase as time passes by. You must therefore determine whether you will incur a fixed or variable interest rate, and whether you will be able to afford the cost of your repayments. If you are struggling to calculate the cost of taking out a loan, a loan calculator may be able to help you. Some loans also have expensive arrangement fees, which can raise the cost of your loan. You must therefore factor in these costs when working out the total cost of your chosen loan.

Finding a secured loan

If you have decided that a secured loan is right for you, contact your mortgage lender to determine whether they will be able to offer you an affordable loan. If you have a good record of repaying your mortgage, you may be able to acquire a special deal on your loan.

Next, check loan comparison websites to determine whether you could acquire a better deal with another lender. Secured loans are subject to competition amongst lenders, which means that lenders often offer deals with the aim of warding off their rivals.

If you wish to compare several loans through a loan comparison site, check whether your research will affect your credit rating. Some lenders will perform a credit check on you before providing you with a quote for a loan, and if many lenders carry out a credit check in a short period of time, it could have an impact on your credit rating.