There are a whole host of loan products available in the market, and it can be difficult working out which ones are the best for which uses. Secured loans are very popular for a variety of reasons, but there are of course reasons why people choose not to use them.
Secured loans are ones which are secured against a property, and as such, are only available to homeowners. This does mean that if you fail to keep up with repayments, your home could be at risk. This is the main reason that people avoid secured loans, though there is an argument that you should never enter into a loan agreement if you do not believe that you can keep up with repayments, so those who can afford the loan should not be at risk.
The main benefit of a secured loan is that interest rates are generally lower when compared to personal loans or credit cards. This can mean saving a lot of money in the long term. Rates are low because the loan is secured, so the lender can be very confident you’re going to repay. Lower interest means that the loan can be taken out over a longer period without drastically increased costs.
The period of a secured homeowner loan is another potential benefit. Usually loans are taken out over a few years, but a secured loan can be taken out over as long as 25 years, which is ideal for home improvements and other things that you can enjoy over a longer time. Only mortgages can usually be taken out for this long. The longer the life of the loan, the lower the repayments will be which means things become more affordable although it is worth noting that terms for secured loans can tend to be longer than in relation to other debt, so you can end up paying more interest overall.
With personal loans and credit cards, you are usually limited to borrowing up to around £10,000, but with a secured loan, under the right circumstances you may be able to borrow as much as £100,000, which makes big purchases such as home extensions possible.
As with all loans, you should do extensive research before taking one out. You should compare products and lenders to make sure that you’re getting a good deal, and for larger loans, you might even consider getting professional advice.