Are Secured Loans the Answer?

Debt Consolidation Loans are Only Good when They Make Debt Cheaper

Feb 14, 2009 Neil Gunn

Secured loans are only available to borrowers who pledge an asset, more often to those who own a property or hold a mortgage on a property, but it can be another asset.

The danger of a secured loan or debt consolidation loan secured on an asset is that if repayments are not met, the lender can take possession of the asset offered in security, and that may be a person’s home.

Secured Loan

The advice offered from almost all independent sources is to think very carefully before applying for a secured loan or debt consolidation loan. It is not necessarily a good thing to have all debt consolidated but it is a good thing to have cheaper debt.

The glossy and seductive adverts that leap out from the pages of magazines and newspapers together with the many thousands of “offers” available on the Internet entice with “quick decisions,” “quick payout loans,” "debt consolidation loans" and “people with bad credit are welcome.” A quick search on Google using the search term “secured loans” reveals almost eight million pages of information; it’s little wonder that there’s considerable confusion about the subject.

Debt Consolidation Loan

A secured loan or debt consolidation loan may seem the ideal panacea to those who feel desperate about their financial situation and make the decision to apply for the loan without proper thought or advice from a free and independent source. The Citizens Advice Bureau or the Consumer Credit Counselling Service are great places to start.

Personal Debt Advice

The Citizens Advice Bureau (CAB) have said they have seen an increasing number of mortgage and secured loan arrears problems and those seeking advice are: “Disproportionately from lower income households…” who are likely to borrow at a higher rate of interest.

The CAB also makes the point that their clients do not shop around for a good deal. “Instead they rely on recommendations made by a broker…” It’s a powerful argument for free independent financial advice.

Before signing on the dotted line stop for a moment and consider what might happen if, in the current economic climate, a person lost their job, fell ill and couldn’t work or if interest rates on the loan increased?

Interest Rates

There are many factors which will influence interest rates including fluctuations in the UK base rate and “business decisions” taken by the lender. It’s important, therefore, to mention that secured loans usually have variable rates although some may offer a fixed rate for a short period.

Martin Lewis, a highly respected UK financial expert has said that: “Borrowing secured on your home to pay off standard debts is rightly seen as an evil beast yet, as a property owner’s loan of last resort, in specific limited circumstances secured loan can be an acceptable solution.”

So what are these acceptable circumstances? Loans must be used to reduce existing debt and should be the best solution for the individual after comparison with other forms of borrowing that are out there.

Levels of secured loans, available to borrow, are greater when compared to an unsecured loan and longer repayment periods are available. However remember the longer the repayment time the more interest is charged.

Other solutions available, which must be investigated before making a decision to apply for a secured loan, should include moving debt to 0% interest credit cards and unsecured personal loans.

To sum up it’s worth repeating that if a person's in financial difficulty, do not go to a bank or a financial broker before seeking free and impartial advice.

This information is obtained from the reputable sources listed below and is offered in good faith.

Martin Lewis Money Saving Expert

Citizens Advice Bureau

Consumer Credit Counselling Service

The copyright of the article Are Secured Loans the Answer? in Personal Budgeting/Finance is owned by Neil Gunn. Permission to republish Are Secured Loans the Answer? in print or online must be granted by the author in writing.

Secured Loan on a House