UK PROPERTY NEWS & ADVICE

The Lowdown on Secured Loans

Secured loans (also known as Homeowner Loans because they are secured against your property and therefore only available to homeowners) get a pretty bad press. Seen as the last resort of desperate borrowers, the potentially huge downside of such loans is that should you fail to make your repayments the lender can repossess your home. This certainly makes them a high risk proposition so if you are considering it, you really should give the matter some serious thought and make sure you do it properly.

The thing is, secured loans are actually more popular than ever. Given that they are increasingly marketed as a way of consolidating debt perhaps this popularity is associated with the rise in personal debt in the UK.

Whilst one should certainly maintain a guarded approach to secured loans (as one should with any borrowing just more so because, and you should keep this in mind, the roof over your head is on the line) that isn’t necessarily to say you can’t make it work out. Here are a few things to bare in mind:

• Secured loans are not the best option for everyone. The principle appeal of a secured loan is that they can be much larger than unsecured loans; where typical personal loans are limited to £25,000, secured loans can potentially be taken out for between £75,000 and £100,000 and repayments spread over a longer period.
• Remember that the interest on a secured loan is variable; this adds a degree of uncertainty for borrowers because, unlike most unsecured loans, the interest isn’t fixed for the life of the loan and is therefore susceptible to fluctuations – the recent base rate rises for instance are likely to have affected rates. This means that you should really consider whether you could still afford to repay a secured loan should there be an increase.
• Most lenders won’t allow you to pay off you’re debt early and will penalise you for attempting to pay off your debt in advance. If your secured loan is over a year old and you pay it off early you could get caught out by ‘rule of 78’ which, without the space to go into detail, essentially means interest is calculated so that you can end up paying more than you borrowed. The rule has recently been banned for more recent loans but those with older loans should probably look into it.
• If you’re considering a secured loan it might be a good idea to make your mortgage provider a first port of call, they may offer existing customers privileged rates.
• Finding a good loan deal can be a complicated and laborious process – if you’re online it really is worth utilising the web – check out comparison sites like

MoneyExtra or the secured loans section of fool.co.uk. Such sites allow you to enter your details and how much you want to loan and run a search for you, saving you a lot of time and effort. The following table gives you a quick overview of a few of the top deals:

Figures correct at time of writing (02/11/2007)

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