Advantages And Disadvantages Of Secured Loans - Choice Loans

By Author: John O’Farrell
Total Articles: 23
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Secured loans are loans where the borrower secures his loan as a second charge against his house. Since the collateral used by borrowers is his home, this type of loan is also known as homeowner loan.

Secured loans are loans where the borrower secures his loan as a second charge against his house. Since the collateral used by borrowers is his home, this type of loan is also known as homeowner loan. One important feature of a secured loan is that in order to qualify for one, the Borrower must already have a mortgage with some free equity (the first charge). Both the lender and the borrower benefit from this type of loan. On one side, the financial institution lending the money has greater security that it will be able to recover the money, even if the debtor stops paying while the borrower, on the other hand, will enjoy better rates and will be able to borrow flexibly with a relatively quick arrangement period.

Advantages of secured loans
If you need a substantial sum of money and you need it fast, a secured loan can help you get it without having to deal with complex procedures and valuations from the bank ...
... – if the LTV is low, very often no formal valuation is done at all! This can really speed up the approval process. Since you guarantee the payment of the loan with your house, the bank is completely covered in case you cease payments. This allows the bank lend at better rates than in the case of personal loans. In some cases the lender can hold the deed or title of your home until the loan, including interest and other fees, is fully repaid.
In certain situations, this type of loan can help you save a lot of money. If you accumulated a lot of credit card debt and you also have personal loans, you can refinance them through a new loan with better rates. Putting your house as collateral will get you better interest rates from the bank. You can use the money to pay all the old debts carrying sky-high interest rates thereby saving you hundreds of pounds each month.

Disadvantages of a homeowner loan
Of course, these loans also have some disadvantages. The most important one is that if something unexpected occurs and you can’t keep repaying the loan, you could lose your home. This is why, when applying for a loan, you must make sure you can afford the monthly payments in any circumstances. Try to imagine the worst-case scenario: for example, if you lose your job and you can’t find another one for a few months, will you still be able to repay your loan and keep your home safe? As always, don’t borrow more money then you need and don’t agree to monthly payments that are too high for your current income. Like any other financial services, this type of loan requires a responsible attitude. Use the loan to your favour: obtain money for important investments or to refinance very expensive loans. If you use the money to refinance historic debts, make sure you monitor your finances better this time and you won’t end up back in the same place in a couple of years’ time.

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