Secured Loan Debt

How does secured loan work?

Secured loans work the same way as other types of loans. You’ll repay what you owe with monthly repayments including interest rates.

The interest rate is calculated as a percentage of the amount you borrow. This may be fixed or variable depending on the loan you’ve opted for.

As along as you manage the monthly repayment on time and in full, you won’t lose your home or valuable asset.

What happens if I miss my loan repayments

If you default on any secured loan payments the lender has the right to take possession of your home. They are legally allowed to sell it to reclaim any debt owed to them.

There are serious consequences if you miss payments on your secured loan so it’s important to act quickly if you’re worried about being able to pay the loan.

You should speak with the lender as soon as you realise you’re starting to struggle with your payments. Together you may be able to come up with a repayment plan that can help prevent the worst case scenario.

Missed payments will also appear in your credit history. In turn this will lower your credit score and make it harder to borrow money in the future.

If you default on any secured loan payments the lender has the right to take possession of your home

What are common secured loans?

As mentioned secured loans are loans that are secured against a valuable asset such as a house or a car.

There are various different types of secured loans, we’ve listed the most common below.

Mortgage

A mortgage is the most common type of secured loan.

It is a loan that you use to buy a property. To become a homeowner you’ll be required to put down a cash deposit (at least 5% of the property price) and pay for the outstanding balance using a mortgage from a lender such as a bank or building society.

You’ll then the pay the mortgage and any interest rates in monthly repayments over a set number of years.

If you’re fortunate enough to come into money that could go towards paying off what you owe the mortgage lender it’s possible to complete the agreement early. However, you should be aware that you may face early repayment charges.

As your mortgage is secured against your property, you home could be in jeopardy if you fall behind on payments. Your mortgage lender is legally entitled to force court action to repossess your home if you aren’t able to manage mortgage payments and sell it to recover your debts.

Second charge mortgage

A second charge mortgage, also known as a second mortgage, allows you to borrow money whilst still having an existing mortgage.

You may consider a second mortgage depending how much equity if you’re unable to access another form of unsecured loan, such as a personal loan. Many people use them as way to raise money often on home improvements, but there are some things you need to be aware of before you apply.

You can release the equity as collateral for another loan. However, it’s important to remember that if you fail to stay on top on repayments it could put your home at risk.

Debt consolidation loan

If you owe money to various different debts, you can manage them with a debt consolidation loan.

Some debt consolidation loans are secured against a valuable asset such as a home. Debt consolidation loans secured on your home can be either first or second charge mortgages.

What is the difference between a secured loan and unsecured loan?

Secured and unsecured loans are different ways of borrowing money. If you’re considering either type of loan it’s important to be aware of the differences between the two.

Collateral

Secured loans must be secured against a valuable asset, typically your home. The asset is often referred to as collateral. Agreeing to this means that the lender has the legal right to repossess the asset should you fall behind on your repayment schedule.

In contrast, you aren’t required to put up an asset or collateral when applying for unsecured loans.

Borrowing limit

There are differences in the amount you can borrow when it comes to comparing secured and unsecured loans.

You can usually borrow more money with a secured loan. That’s because the lenders are prepared to take a bigger risk as they have the security of your asset if you fail to pay what you owe. This doesn’t happen with unsecured loans.

Interest rates

There are also differences in interest rates between unsecured loans loans secured against an asset.

Generally speaking, you may find you can access a lower interest rate on a secured loan compared to the same size unsecured loan.

This is because you’re putting up an asset as security so there’s less of a risk for lenders.

Credit score

It’s no secret that a good credit history and credit score are important when accessing the best interest rates.

When it comes to applying for a secured loan loan it’s important to lenders that you have a strong credit score but it’s more crucial for the best rates on an unsecured loan.

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Can a secured loan affect my credit score?

If you fail to manage your secured loan payments you could face serious consequences.

Unlike defaulting on unsecured loans, such as personal loans, failure to pay the loan could result in losing your home or the asset the loan is secured against.

It’s also important to remember that as with all problem debt, failure to pay can also negatively affect your credit score for up to seven years.

Are secured loans easy to get?

Secured loans can be easier to get as you’re willing to put an asset, such as you home, forward as a guarantee for payment.

Lenders may see you as less of a risk and will rely less on your credit history and credit score when deciding whether to grant the secured loan or not.

If you’ve been refused for other kinds of loans and you’re a homeowner a secured loan may be an appealing option.

If you fail to manage your secured loan payments you could face serious consequences.

How can I avoid secured loan debt?

Given the serious consequences of falling behind on secured loan payments it’s important to avoid problem debt as much as possible.

Budget

Sticking to a strict monthly budget is important to keep track of what you owe.

The likelihood is a secured loan, such as a mortgage, won’t be the only debt you have so you need to ensure you have enough funds to cover everything.

A positive of secured loans is that they typically are fixe, making it easy to budget for them each month.

Prioritise

If you’re repaying several debts, secured loans should always come first. Secured loans are a priority debt as the consequences of not paying are so severe.

If you do find yourself struggling to keep up with your monthly repayments you should speak with your lender as soon as possible to avoid legal action and repossession of your home.

Contact

As mentioned above it’s important to keep the loan provider in the loop if you begins struggling with payments.

Let them know about your situation and discuss options to help you such as reworking your repayment plan. It might be a hard conversation but it could prevent more serious action later.

Where can I find debt help?

While secured loans, such as mortgages, are a positive part of everyday life for many it’s important to be aware of what help is available should you ever start to struggle with debt.

If you’re worried about managing existing debts, you should speak to Your Debt Expert. Our team offer professional debt help tailored to your circumstances.

Call us today on 0800 082 8086