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Secured Loans vs. Unsecured Loans
While many individuals stay away from secured loans, preferring unsecured
debt under all conditions, some borrowers are more aware that it can pay to
choose a secured loan. For example, where interest rates have risen suddenly,
and credit cards APRs have shot up, consolidation of current debt into a single
monthly repayment using a secured loan can make very good sense. However,
whether or not this is the case depends on the precise maths used by banks to
calculate your repayments.
The rapid rise in house prices, while making it increasingly difficult for
the first time buyer to get on the property ladder does have some benefits. It
has left most home owners in the south east with a considerable amount of equity
locked up in their homes, which if cleverly managed or released through a
secured loan, could save them thousands of bounds in interest payments over
10-25 years due to secured loans typically having a far lower interest rate than
credit cards and a significantly lower rate than other unsecured debt. Naturally
your home is at risk if you do not keep up the repayments, but if the lender and
the borrower do their homework, there should me no risk of this eventuality.
The APR that bank will decide to lend to each individual at is a function of
how risky an investment they are judged to be. The inherent or baseline level of
risk associated with each person has recently risen to the current credit
crunch, so the cheap loans of yesterday will become fewer and farther between.
However, it will still be possible to acquire a good rate if you are deemed to
be a less risky investment by the bank. This is decided by how good your credit
score is and whether you have defaulted on any payment over the last 6 years.
Lenders prefer that larger loans are secured on a property in order to limit
their risk. Typically these secured loans are repaid over 10-25 years at a
significantly better rate of interest than is the case with unsecured forms of
debt. If you currently have a lot of high interest unsecured debt and equity
tied up in your home, it may be advantageous for you to speak to a financial
advisor about a secured loan.
The tables below show a summary of typical rates for some lenders (all rates
accurate at time of writing):
Secured Loans
Unsecured Loans
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