A secured loan is also known as a homeowner loan. It is a loan where the borrower uses their home as collateral. Therefore, this type of loan is only available to people who own their own home. However, the loan amount, the interest rate and the duration of the loan is dependent upon your individual circumstances as well as the amount of free equity that is available in the property. Free equity is the difference between how much you owe on the mortgage and the amount you have already paid into the mortgage.
Benefits of a Secured Loan
- • You are eligible for a larger amount than personal loans, you can typically get a loan amount of up to £25,000.
- • Because your property acts as security for the loan, you are more likely to get approved if you have bad credit.
- • You are generally given a longer period of time to pay back a secured loan.
Disadvantages of a Secured Loan
- • If in the unfortunate event you are unable to pay back the loan, there is a high chance that your bank will repossess your home.
- • There are usually fees for early termination, and this can increase the cost of borrowing.
Alternative Loans
If you’ve got bad credit, a short-term loan is a viable alternative to taking out a loan on your house. You probably won’t get the amount that you need, but you will get something. A short-term loan is not based on your credit score but on whether you are able to pay the loan back based on the amount of money that you’ve got coming in.
Final Thought
Taking out a loan on your house is a big deal; as mentioned, if you are unable to pay the loan back, you will lose your house. Therefore, before taking such drastic action, book an appointment with a financial advisor.