A secured loan is different to an unsecured loan because it offers the lender collateral in the event of the loan being defaulted on. However, debt consolidation secured loans can make borrowing possible. If adverse credit is a problem, a secured homeowner loan may still be available, provided that sufficient equity is available.

Advantages of Secured Homeowner Loans

• Reduced monthly repayments on debt. If credit card debt, overdrafts and other sources of borrowing exist, a secured debt consolidation loan can reduce monthly repayments.
• Easier to manage a single monthly payment. Making one payment makes finances easier to manage and can reduce charges and interest accrued.
• Pays off creditors in full. Paying off debt and putting them under one roof can prevent a debtor being chased by multiple creditors.
• A loan may now be possible. A debt consolidation loan may not be possible if adverse credit exists. Taking out a homeowner secured loan may mean that a borrower can now get finance.
• The APR is normally lower on secured loans. The additional security means that a borrower is less likely to default on a loan. This allows a borrower to get a homeowner secured loan at a more attractive rate of APR.
• High amounts of money can be borrowed. Unsecured loans are only normally available for loans up to £25,000. A secured homeowner loan can mean that as much as a £100,000 can be borrowed.

Disadvantages of Secured Homeowner Loans

• The loan is secured on the property. A secured loan means that the money borrowed is secured on the family home. If repayments aren't made on time, it normally results in home repossession. It isn't possible to use a debt solution, such as a debt management plan or IVA to deal with any subsequent financial problems.
• Creation of new debts. If the old forms of credit are paid off and the accounts aren't closed, there is a high risk that new debt will be created.
• Availability of equity. In order for a loan to be approved, it is necessary that sufficient equity is available in the property.
• A remortgage is cheaper. If not tied in to an existing mortgage agreement, getting a remortgage is a cheaper form of borrowing.
• Variable rates. Secured loans are vastly more likely to be at variable or LIBOR rate. This means that rate rises can stretch affordability during times of escalating inflation, especially if the amount borrowed is considerable.
• The amount of interest paid can be vastly higher. Although monthly repayments maybe lower, extending the term of a loan will almost certainly result in more interest being paid.

Always compare the rates using an online price checker to ensure that the most attractive rate of APR is achieved. Don't simply settle for what the bank is offering as rates of APR vary widely between financial institutions. Remember that a secured loan can lead to mortgage repossession if repayments aren't maintained.

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