The Meaning Of A Secured Loan

You have probably heard the word ‘secured loan’, ‘second charge’ or ‘homeowner loan’ being used especially in the world of finance. You may wonder exactly what is meant by these terms. Some people think that secured loan say for the purpose of a car purchase means that the loan is secured against the car. They think that if the monthly loan repayments are not made the car will be reposed. This is incorrect. What is conventionally meant by the term secured loan is that the loan is secured against your property or rather the equity in your property. This means that if you do not keep up your monthly loan repayments your property can be reposed and sold in order for the lender to recover the debt. It works in exactly the same way as a mortgage in this sense.

However, in this event your mortgage company will always have first right to the property to reclaim their debt and what is left the secured loan company can access to recover their losses from your unpaid debt. This is because your mortgage company will have first charge and then the secured loan company will have the second charge registered with the land registry. Don’t let this scare you as it is unusual for matters to go this far. Secured loan companies work hard to ensure through calculations and underwriting criteria to ensure that the loan is affordable for you. They also provide payment protection insurance so that the repayments will be made for you in the event of unforeseen circumstances like redundancy, illness or even death.

This is why it is very important to consider payment protection on your secured loan. Do however, be aware of the risks as this is why the warning ‘failure to keep up your loan repayments can put your house at risk’ and ‘your home is at risk if you fail to keep up your loan repayments’. The main objective must be here to understand both the risks and rewards of a secured loan and to ensure that the repayments that you agree to are affordable.

Now that you understand the risks lets explore the rewards and opportunities that a secured loan can offer. As you are securing your property as a guarantee that you will repay the loan and make your monthly repayments in return the secured loan lenders tend to offer you a very good overall deal. The interest rates on secured loans can often be lower than personal loans or unsecured loans or indeed credit cards or hire purchase agreements. Secured loans are often offered with lower fees if not no fees at all. Secured loans can be offered over a longer term to make your repayment even lower and certainly more affordable for you.

The amount you can borrow can be larger with some secured loan lenders lending in excess of £100,000 in any one transaction. Therefore secured loans are often more suitable for large purchases such as holiday homes, extensions, home improvements as well as consolidating all your existing debt into one manageable monthly repayment. This could give you the fresh start that you need. Secured loans can be used for almost any purpose. Traditional and common uses for the secured loan include debt consolidation, refinancing debts, home improvements, car purchases, weddings to even once in a lifetime holidays and cosmetic surgery.

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