When you decide to take out a loan you will have decide whether or not you wish for it to be secured or not.

Lenders are more willing to accept loans whenthey are secured against your home. Most lenders won't accept those for loans over £25,000 unless they are secured. But you must beware as your home is at risk if you fail to meet your repayment terms.

What Are The Main Differences

Loans secured against a property that is already mortgaged are known as second charges, whereas loans secured against a property owned outright with no existing mortgage in place are known as first charges.

Secured loans have always been looked upon as an expensive loan and until recently have been recommended as a last resort only. This was mainly due to the fact that these type of loans was only accepted by brokers who charge very high interest rates. However you will find that many of todays lenders such as banks are more willing to accept you when it secured against your home.

Cheap, unsecured loans are also becoming harder to come by. As a result of the credit crunch lenders are more selective about who they will lend to and certainly those with a less-than-perfect credit history may find they are offered a more competitive rate if they are willing to secure their property against their debt.

This means that secured loans are becoming the available option especially for those who need larger amounts and want to repayments spread across a longer period of time.

Although if you are only looking to borrow a smaller amount of money over a short peroid of time, unsecured loans are most likely to be the more appropriate option.

There are many flexible options for secured loans these days which means that it is relatively easy to find a loan that suits your needs and budget. You can keep your repayments low by spreading the cost over a longer peroid, or increase repayments to keep the interest rate low.

Remember too that the amount you can borrow, the term available and the interest rate you pay will all depend upon the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances.

Advantages and Disadvantages

Unsecured personal loans normally allow you to borrow anything between £1000 to £25,000 and can usually be paid off over a peroid of 1 and 7 years although some lender allow loans over £10,000 to be repaid over a maximum of 10 years.

Some lenders offer flexible loans which allow you to make over-payments and lump-sum payments, this allows you to clear the debt over a shorter time period than what you agreed when you took out the loan

Secured loans tend to allow you to borrow more normally from £3,000 to £50,000 although some lenders will lend higher amounts upto a maximum of £100,000. Secured loans allow to pay over longer peroids than that of unsecured loans. The amount borrowed can usually be repaid over a maximum of 25 years.

When considering secured loans you should also keep in mind that it is vital to keep on top of repayments as you loan is secured on your proprty which could result in the loss of your home if you fall behind.

Unlike secured loans an unsecured loan will not result in the risk of losing your home although if you fail to meet repayment terms your credit rating will be effected, making it more difficult to obtain credit in the future. Unsecured loans also charge fee's for late payments.

As always when considering any type of loans you should always make sure that your income can cover your repayments alongside any other outgoing you may have.

Whats Are The Alternatives

Credit cards can be a good alternative especially for those only looking to borrow smaller amounts like £2,000 - £3,000. There are a number of deals offering interest free periods on balance transfers and purchases, making borrowing on a credit card potentially cheaper than a loan.

You should also beaware that most credit card providers now charge a balance transfer or handling fee, which is a charge for the percentage of the amount of debt you need to switch to the card. This fee ranges from 2% to 3% of the balance transferred and needs to be taken into account alongside the interest rate before signing up to a deal. Saying that, if you are currently paying a standard interest rate of 16% or so, then this fee is well worth paying for.

Another alternative for homeowners is to remortgage your property and release some the equity fro your home. remortgages are a good option if your looking at borrowing more than a few thousand pounds. These loans are a popular choice for homeowners.

Mortgage rates are generally lower than that of loan rates which makes them an good option. Be careful if choosing to remortgage as you are increasing your mortgage and if you choose to change provider you are looking at paying around £1,100 just to switch provider although there have been customers claim they have paid as much as £2,000.

Secured loans are also likely to work out cheaper than remortgaging for homeowners who face stiff penalties to exit short-term, low-rate deals. If, for example, you are three years into a five-year deal, you could have to pay 10% or more of the total amount borrowed – or £20,000 on a £200,000 property – to change the terms of your mortgage.

Mortgage lenders are also tightening their belts in the wake of the credit crunch, meaning that low-cost remortgage deals are becoming much harder to find.

 

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