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This will usually be your home. Secured loans are less risky for lenders, which is why they are normally cheaper than unsecured loans. But they are much more risky for you as a borrower because the lender can repossess your home if you do not keep up repayments. There are several names for secured loans, including: home equity or homeowner loans second mortgages or second charge mortgages first charge mortgages if there is no existing mortgage debt consolidation loans although not all of these loans are secured.
An unsecured loan is a loan that doesn't require any type of collateral. Examples of unsecured loans include personal loans, student loans, and credit cards.
First and second charge mortgages Debt consolidation loans that are secured on your home can be first unsecured option is second charge. Whereas a second charge mortgage involves setting up a separate agreement with your existing mortgage lender or going to a different lender. Borrowing more from your mortgage lender You can get a further advance on your mortgage — where you borrow an additional amount of money against your home from your current mortgage lender.
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Read our guide on Increasing your mortgage — getting a further advance Pros You will normally pay a lower interest rate than with a personal loan because the loan is secured against your home. Your repayments are normally made on a monthly basis.
However, the amount you pay each month will vary if the interest rate is not fixed. Cons The loan is secured on your home, so you could lose your unsecured option is if you cannot keep up your repayments.
Some loans have variable interest rates, meaning your repayments could increase. Make sure you know if the rate is fixed or variable. Make sure you factor this in when you work out how much the loan is going to cost you.
Use the APRC to compare products. This could damage your credit rating.
Unsecured loans explained
Also, the lender can go to court to try and get their money back. This could include applying for a charging order on your home - although they should make clear upfront, whether or not this is part of their business strategy.
Know the difference: secured vs. Reading time: You save for what you need. But then something totally unexpected happens.
How to get the best deal If you have decided that a secured loan is the best choice for you, then your first step should be to approach your mortgage lender to see what they offer. Some will offer special deals to those borrowers who have a good record repaying their mortgage.
Next, check some comparison websites to see if you can get a better deal with another lender. However, bear in mind that comparison websites do not always offer a comprehensive selection of deals.
If this happens lots of times, it could harm your credit rating. How to complain if things go wrong If you are unhappy, your first step should be to complain to the loan company.
Read more on the Financial Ombudsman Service website opens in new window. Did you find this guide helpful?