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Property Finance - Secured and Unsecured Debt

PROPERTY ADVICE BLOG - Mortgage Brokers - Secured and Unsecured Debt

If you are taking out a mortgage you may be offered either a secured or unsecured loan. The majority of debt consolidation loans are secured on your property, which means if you fall into arrears your home will be repossessed. Unsecured debt based on credit cards for example, may result in the borrower being taken to court if payments are not made.

The main differences between secured loans and unsecured loans:

Unsecured loans accumulate a higher rate of interest as the risk for lenders is greater. Secured loans on the other hand have a lower annual percentage rate (APR) as the lender has the means to recover the debt via repossession.

Applying for a secured loan or an unsecured loan - When it comes to taking out a secured loan or an unsecured loan the lender will consider everything from your past employment history to your credit rating. You may find that a number of lenders advertise for those who find it hard to get a loan or have a poor credit history. Because of the added risk, this type of lender will offer  high interest rates, which means they can make more money from the borrower in the long run.

PROPERTY ADVICE BLOG Tips on secured and unsecured debt:

•    Consider taking out indemnity insurance if you take out a secured loan based on the value of your home. In this way you can protect yourself if you do fall into arrears.

•    If a loan seems unbelievably tempting and better than all the rest, it would be wise to read the small print in order to avoid disappointment.

•    Similarly, cheap loans may seem appealing, but look out for additional arrangement fees which can result in much larger payments.

•    Only apply for a loan if you are 18 years old or over. Banks and official lending companies won’t be of service unless you are the legal age to get into debt.

•    Avoid loan sharks and all other unregulated lenders. Established companies with a recognised loan history are the safest option.

•    Always seek impartial property finance advice if you fall into debt. Free property advice from the Citizens Advice Bureaux is often the most reliable, as banks and building societies may have their own agenda.

•    Think carefully before you choose quick fix loans which are advertised in the media, such as the advert where the borrower takes out £25,000 to be paid over 180 months. With high interest rates you could be paying back almost double the amount initially stated. In addition you may lose your home if you secure a loan on your property which can’t be repaid within the given time.

•    For the best property finance advice speak to a number of lenders and compare their policies before making your choice about secured and unsecured loans.

PROPERTY ADVICE BLOG Top Tip!

APR levels can vary between companies, so in order to get the best quotation you should shop around and choose from at least three different lenders. Always read through their policies with a fine tooth comb and understand exactly what you will be paying at the end of every month. If you need a loan to buy or improve a property then the general practice is to secure a loan on the property you are purchasing. Car loans on the other hand can normally be secured by a bank.