Secured loans have become increasingly popular over the years, and with property prices in the UK having soared over the past decade many people have turned to secured loans for their finance needs, using the rising equity in their homes to give them increased financial leverage and the chance to obtain affordable finance. Whilst property prices have been falling over recent months industry officials are quick to point out that property prices are still way higher than they were two, three, and even five years ago, and this means that many homeowners may still have considerable equity levels in their homes, and so may find that a secured loan is their most suitable option.

A secured loan, as the name suggests, is a loan that is secured against an asset, in this case the home. The level of equity in your homes usually determines how much you will be eligible to borrow, although other factors are also taken into account when deciding this. You can work out your equity levels by deducting the amount that you still owe on your property from the market value of the home. The amount left over is the equity, and the higher your equity levels the more you may be able to borrow in terms of a secured loan.

There are both pros and cons to taking out a secured loan, and whilst these loans have proven effective financial tools for many homeowners it is still vital that you weigh up the pros and cons so that you can make an informed decision about whether this type of loan is suitable for your needs. You should never rush into taking out a secured loan, as you need to bear in mind that these loans are secured against the home, and therefore could put your home at risk.

Pros

The pros of taking out a secured loan are many, and it is easy to see why this type of loan has increased in terms of popularity. You can enjoy a wide choice of lenders, giving you a better choice of finding a suitable loan for your needs. Depending on your equity levels and personal circumstances the borrowing power with a secured loan is far greater than with an unsecured loan, so you could potentially borrow far more. You will also find that the repayment periods with these loans are much longer, and this means that you can spread your loan over a longer period and keep your monthly repayments down. Another major advantage is that because these loans pose a lower risk to lenders you are more likely to be accepted even if you have bad credit.

Cons

One of the major disadvantages of these loans is that fact that they are secured against your home means that your home would be at risk if you fail to keep up with repayments. This is why it is vital that you do not commit to a secured loan unless you can comfortably manage the repayments. Another risk is that of negative equity, particularly given that house prices are meant to be coming down over the next year or two. If you take out a secured loan for most or all of your equity you could find that you are plunged into negative equity of property prices continue to fall further.

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