The pros and cons of a secured loan
April 28, 2011
Whilst some homeowners have seen their equity levels fall over the past few years due to the drop in property prices there are still some homeowners who have a considerable level of equity in their homes, having purchased their properties at a time when they were just a fraction of the price that they are at now.
For these people there is a possibility of being able to borrow money against the equity in their homes, which they can use for one of a number of reasons and purposes. Whilst lending has become more restricted over the past couple of years due to the financial crisis there are some good deals still available for those that are looking for secured loans. There are, however, pros and cons that need to be considered when it comes to these loans, which will determine whether they are suited to your needs.
Pros
- You may find that these loans are more accessible to you because they pose less of a risk to the lender due to the secured nature of the loan
- You can get some very competitive rates of interest with the low base rate
- The borrowing power is greater than with unsecured loans based on your equity levels
- You can choose longer repayment periods than with a secured loan, so you can keep your monthly repayments down
Cons
- The loan is secured against your home, which means that failure to keep up with repayments could result in you losing your home
- If the base rate shoots up you could find the repayments on your loan rising significantly too
- There is no guarantee that you would get a secured loan in the current financial climate
- These loans are only available to homeowners that have some level of equity in your home
It is important to give very important consideration to a secured loan before making any commitment, as it is a very big commitment to make. You need to ensure that you can afford the repayments comfortably, as you will need to be able to cope with any increases in repayments should the interest rate go up. You also need to make sure that you are able to meet the repayments every month so go through your finances with a fine tooth comb before you make your application to ensure that you can afford the loan and will not be risking your home.
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