What is a secured loan?
Also sometimes referred to as a ‘second charge mortgage’, it’s a deal which allows you to borrow an amount of money by using your home as security against the debt.
Depending on your circumstances, you can usually borrow anything between £10,000 and £500,000.
Just like a mortgage, you will have a choice of fixed or variable interest rate – depending on your attitude to risk.
How do I find the best deal for me?
The two most common ways of taking out a secured loan are either through a broker, or by using a comparison website.
There are literally thousands of secured loans on the market and the difference between products can be significant. Choose badly and you could needlessly cost yourself thousands of pounds.
A broker will use their knowledge and contacts to speak with a panel of lenders to recommend the best deal. The benefit of this option is that they will be able to take all of your personal circumstances into account. The downside is that broker fees can be more than 10% of the value of the loan.
A broker’s job doesn’t end when the product is selected, though; they support you throughout the whole process and until the money is deposited into your account.
If you choose an online comparison tool, it’s a tick-box exercise, and although the very same brokers may well be processing your application behind the scenes, there is no opportunity to talk through questions and concerns, or explain personal circumstances which might earn you a better deal, or different answer.
Fixed rate or variable rate – what should I choose?
This is a crucial decision, as the difference can run into many thousands of pounds.
Variable rate deals may be cheaper as the outset, but could you afford the repayments if the Bank of England raises base interest rates, and your lenders follow suit?
If you’re uncomfortable with taking that gamble, then you may prefer a fixed rate deal, even though the initial rate will inevitably be slightly higher.
You also need to consider how long you will need the money for, as some policies will have early repayment penalties. If there’s a chance you will want to clear your debts in the first few years, choose a policy with no early repayment fees.
If there is a danger that you might not be able to keep up the repayments, think seriously about whether a secured loan is the route for you. Remember, you are putting up your home as security, and if you default, you could be at risk of losing it.
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