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Secured loans are essentially home equity loans or a home loan. Secured loans are where you agree to offer the lender security over your home. This means that the lender has the right to take ownership of this asset if you fail to make the repayments that are due under your loan agreement.
The advantage of secured loans are that the lender’s risk of default is reduced; this normally means that they charge a reduced rate of interest or accept a longer repayment period. In either instance it normally means you are required to make lower regular payments. However, you must carefully consider the risk of losing the asset, were you to fall into arrears with the required repayments, against the advantage of paying slightly lower regular payments (this is especially important if the security you offered was your home).
The alternative to secured loans are ones that offer no protection to the lender apart from their belief that you will be able to repay their debt. These are known as unsecured loans. The rates of interest charged are normally higher or the maximum loan terms are significantly shorter than those available for secured loans.
Before you decide on whether to have a secured or unsecured loan you must consider carefully the terms of the loan being offered to you. Always read the small print.
Secured loans may be suitable for you if you are considering debt consolidation (also know as loan consolidation). This could be for credit card consolidation, other unsecured loans, secured loans or general debt consolidation. Whilst this may seem like the perfect solution for people who need to consolidate debt, you need to ensure that the interest rate offered on the consolidation loan in less than the credit card or other debt. There is a greater chance that secured loans will have a lower interest rate than an unsecured loan or existing credit card debt.
Normally, with debt consolidation loans the new lender can offer a large reduction in the repayments required from you by simply bundling together all your outstanding debt and replacing it with one new secured personal loan. The reduction in your monthly payments can be achieved by arranging for the new secured loan to be repaid over a longer timescale or at a reduced interest rate or both.
So although it might be suitable for you to consider debt consoladation into one new secured personal loan this sort of arrangement needs careful consideration before you proceed. You may find that you are required to convert your debt into a single secured loan. As is the case with any financial commitment care must be exercised. If you are in any doubt you should seek advice from a professional or perhaps talk to the staff at your local Citizen’s Advice Bureau.