Secured loans UK - interest rates and repayments

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A secured loan means that the money you borrow is secured against the value of your home, and for this reason is also often referred to in the UK as a homeowner loan.

One of the major benefits of such a loan is that the interest rate charged tends to be significantly lower than that of an unsecured personal loan. A lower interest rate, which is calculated as the annual percentage rate (APR), means that more of you monthly repayment is going towards repaying the original loan, rather than being absorbed by the interest you have incurred along the way. Depending on your circumstances, you may want to take advantage of a lower APR by repaying the loan over a shorter period of time, or alternatively by paying back less each month than you would have done with a higher rate of interest.

Another advantage is that lenders generally offer higher levels of credit to home owners. This can be a loan of hundreds of thousands of pounds, depending on the value of your property and the amount of equity that you have built up within it. In addition, applicants who are self-employed or have an adverse credit history or CCJs (County Court Judgements) will find that they have much more chance of being approved if they have some home equity under their belts.

However, the key drawback of this type of borrowing is that your home is at risk if you default on your repayments. Because of this, it is recommended that you contact the lender immediately if you are having difficulty in keeping up your repayments. You should find that a good lender would rather come to some agreement on reducing the amount you repay each month and increasing the repayment term, rather than taking it as far as court proceedings and potentially the repossession of your home. However, a lender's understanding and good will cannot be guaranteed and cannot therefore be relied upon if you are having financial difficulties. With this in mind it is highly advisable that you only take out a loan that you are confident you can repay on time.

For USA visitors please see our advice on secured loans on our sister site Guide4Home.

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