What is a cheap secure loan?
A cheap secure loan is a loan offered by a lender, which is secured against an asset owned by the borrower. If the borrower fails to keep up their repayments, the lender can then repossess that asset, selling it to recoup their original investment.
More often than not the asset will be equity in a home, so the majority of cheap secure loans are taken out with the borrower risking losing their home if they fail to keep up their repayments.
How does a cheap secure loan work?
When a customer takes out a cheap secure loan, they must have an asset worth at least the value of the loan to secure their loan against. This is usually equity in their home, but some lenders will also accept other assets, such as a car, painting or jewellery as leverage for a loan.
To work out how much equity you have in your home for a cheap secure loan, customers should take the value of their home, and deduct the value of their remaining mortgage. The amount they are left with is the equity they own in their home. If they owe more money than the value of their home, they are in negative equity, and this makes it far more difficult to take advantage of a cheap secure loan.
Why do customers take out a cheap secure loan?
A cheap secure loan can be used for any number of things, with the most common uses being home improvements, debt consolidation, a new car purchase through a secured car loan or even a holiday of a lifetime. Others may borrow money to start their own business.
The most common current use is for extending the living space in a home, as many families start to outgrow their space, but are unable to move house because of the stagnant housing market.
A cheap secure loan can be used to pay for an extension, loft or garage conversion or a conservatory. The extension should also increase the homes value, effectively increasing the amount of equity you own in the home.
Debt consolidation is another popular use of a cheap secure loan, as customers are able to take out a cheaper secured loan, to pay off expensive other debts, like a credit card or store card. The interest rate on a cheap secure loan is cheaper than on most credit and store cards by as much as four times, as the bank have less risk in lending you the money.