If you decide to take out a loan, the next step is to choose whether you should secure it against your home. Obviously, it’s in a bank’s best interest to provide a loan backed against your property, so they don’t find themselves at a financial stand-still, if you can’t make your payments. For you, this is a huge gamble: you could lose your home.
Secured or Unsecured
Secured loans are probably the most viable option in this current economic climate, especially if you want to borrow a vast amount of money. Affordable, unsecured loans are rare, and banks are picky about who they will offer these to. However, if you require only a small amount of money, an unsecured loan may just be the answer you’re looking for.
Pros and Cons
For unsecured loans, you can borrow a maximum of £25,000 over a 10 year period. Some lenders may let you pay off large chunks of your debt to speed up the repayment process. On the other hand, secured loans are available at £3,000 - £50,000; sometimes even as much as £100,000. The pay-back period covers between 3 – 25 years.
Keeping up your payments are crucial in this scheme, otherwise lenders can claim your house if you can’t cough up the cash on time. This risk isn’t the same for unsecured loans, but not meeting payments is still inadvisable as it pummels your credit rating and you may face late charges. This is why it’s so important to ensure that you can meet the monthly payments.
If you are borrowing to wipe out debts, make sure to close these accounts immediately, so you are not tempted to push yourself back into financial trouble again.
The Loan For Me
Self-employed? Changed jobs? Bad credit history? A secured loan may be your only choice, so hopefully you are a homeowner, otherwise you’re in trouble. This scheme is also great if you plan to pay off large amounts of money over a wide period of time. Otherwise, an unsecured loan is for you.
If you only need to borrow a couple of thousand pounds, a credit card can work out much cheaper than a loan. Certain deals will offer interest-free periods, but borrowing on credit cards can be a complete nightmare if you use it for any other devices. Spending can get out of control when using a credit card and not being able to make the monthly payments can throw you headfirst into debt.
Homeowners who want more than just a few grand in their pocket can remortgage their property to recover equity from their house. However, changing your mortgage provider can cost you anything above one thousand pounds, so think before you switch.
It may be more advisable to go for a secured loan in this case, as cheap remortgage packages are few and far between. Changing the terms of your mortgage can add up to 10% of your total amount borrowed; for example £25,000 on a £250,000 property.