Guidelines on secured loans
There’s no doubt that there are some fantastic, cheap secured loans available, but you need to find one that will help you, not turn into a financial nightmare.

Before you consider secured loans as a financial solution, there are key things to consider. You need to weight up the advantages and disadvantages.

Advantages

• You can borrow over a long period of time – up to 25 years allowing you to borrow up to £100,000.
• If you have bad credit, the lender will still take the risk on the faith that the borrower has collateral to back up the amount borrowed.

Disadvantages

• If you fail to meet repayments, the lender has the right to take your house.

APR

If a cheap loan has a low APR (annual percentage rate) of interest, it can appear to be a good deal - but you need to be aware. Lenders calculate their typical APR by assessing the client’s credit history. You might be one of the few who do not get the typical APR and if that happens, it’s a good idea to get a new comparison.

Hidden costs

Other pitfalls to be wary of are:

• An early repayment fee

Repaying a loan in full before the end of its term is an attractive prospect – it means, on the face of it, that you can escape interest charges. But you need to be aware of the early repayment fees. There are different phrases for this used by different lenders – repayment charge, financial penalty, early redemption fee or redemption penalty all mean the same thing! A penalty can add cost and even increase the loan if you repay the sum earlier than the agreed period. This can be as much as two months’ interest.

• Length of loan

This is crucial for all loans, secured or unsecured. Low monthly charges may be an attractive option, but the length of time to pay back the loan will subsequently increase, meaning you pay more in the long term. Always calculate how much your loan will cost you in the long run, and whether or not cheaper monthly repayments for a longer period represents the best solution for you.

• Interest rates

Interest rates vary. People who are more secure in their finances may secure lower interest rates, and those considered more of a risk can be refused a loan or offered money at a higher interest rate. Do your research and shop around, than you should be able to negotiate the interest rate.

• Fixed or variable

Similarly, fixed rates are perfect if you are on a steady income. Variable rates may seem more attractive in saving you money, but there is always a risk. Remember that variable rates are linked to economic changes so you should always budget in case interest rates rise. If they do, your repayments will increase accordingly.

• Loan holidays or breaks

Always check the small print – the interest you would have paid in any loan repayment holiday or break could still be payable and added to your outstanding balance.

• What happens if you can't repay the loan?

The reason why secured loans can be cheaper and offer larger amounts of money is because they are exactly that – secured. The collateral (usually your home) offsets the risk to the lender. If you can’t meet your repayments, you should talk to your lender. If they believe your finances may improve, they may be prepared to suspend loan repayments for a while. But you should always be aware that you could lose your home if all other avenues fail.

Loansum is a specialist broker that searches the market to find a low rate secured loan that’s right for you. Call us on Freephone: 0800 848 8046 to find out how we can help you or email help@loansum.co.uk.

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