Secured loans for debt consolidation
In today`s credit markets, secured loans can be a particularly effective way of consolidating debts. It`s true that loans of all kinds have become harder to access in the last 18 months, but most lenders are still prepared to offer loans to people who can offer equity (see below) in their home as collateral, as long as they can afford the repayments.
A note about equity: subtract the total debt secured on your property (mortgage and / or secured loans) from the value of your property. If, for example:
- your house is worth £150,000 and
- you owe £75,000 on a mortgage and
- you owe £15,000 on a secured loan
...then you have £60,000 of equity.
Debt consolidation - why take out a secured loan?
If you`re a homeowner and looking to consolidate your debts, there are good reasons you should consider securing it against your property.
Lower interest rate. A secured debt consolidation loan can offer a significantly lower interest rate than an unsecured debt consolidation loan. Lenders know you have the assets (your property) to repay them, so there`s less of a risk for them.
Longer repayment term. In most cases, you can arrange to repay your secured loan more slowly than you would be able to with an unsecured loan - but please be aware that repaying any debt more slowly is likely to add to the cost, as you`d be paying interest for longer.
Greater amount. Most lenders are prepared to offer more through a secured debt consolidation loan than they would through an unsecured loan. With Think Money, you might be able to borrow up to £100,000, depending on how much equity you have in your property, and on your ability to keep up with repayments.
Greater availability. As mentioned above, lenders may be more willing to lend you money if you can secure it against property.
Secured loans - the risks
Your home may be repossessed if you don`t keep up with repayments on a mortgage or any other loan secured on it. Lenders will only seek repossession as a last resort, but you still need to think very carefully about the risks.
In other words, you should never take out a secured debt consolidation loan before you`ve spoken to a debt adviser who can help you calculate whether you can afford the repayments on a loan - taking into account any foreseeable changes in your circumstances - or whether you might be better off with an alternative solution to your debt problems.
For more on information on a range of debt solutions, including secured debt consolidation loans, call our debt experts on freephone 0800 195 2910.
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