Secured Loans

Why homeowners are laughing all the way to the bank

Secured loans usually offer the lowest interest rates and the best terms, and they're a good bet for homeowners – but there's a risk, because you're putting your house up as a guarantee you'll pay the loan back. If you fall into arrears, you could lose your home.

Of all the loans you can get, secured loans are usually the cheapest. The APR is often a couple of percent less than other loans, the repayment periods are longer (if you want them to be) and the amount you can borrow is usually higher. That's because for lenders, secured loans aren't as risky as personal loans – but it's important to realise just what you're doing if you're applying for secured loans.

When you take out a secured loan, you're using your house as security: in effect you're saying "look, if I don't pay my loan back you can have my house." It's no false promise, either: if you fall on hard times and can't make the payments, the lender can force the sale of your house to recover its money.

Of course, that won't happen to you, will it? The trouble is, nobody knows what's round the corner. That's why people who take out secured loans should make sure they take out payment protection insurance, too: that way, if you're made redundant or suffer a serious injury that prevents you working, you won't need to worry about losing the roof over your head.

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