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Secured loans are a popular way of raising funds for homeowners
and there's no denying that taking one out can be a great way of organizing your finances. Debt consolidation
financing home improvements
even paying for a new car - secured loans can be used for all of this. However
as with any financial agreement
it's only sensible to take your time when deciding whether to proceed. After all
with a secured loan
you could be betting your home on a successful outcome. So what things do you need to consider before finalizing your application?

Firstly
as just alluded to
it's an inescapable fact that taking out a loan that's secured on your home could potentially put your home at risk. Should you fall behind on your repayments
the lender can apply to seize your property
evict you from it
and then sell it at less than market value to clear the debt. Scary
huh?

This is
of course
a fairly rare outcome
and most lenders are happy to work with you if you do get into trouble
using repossession as a last resort
but you should consider this carefully before taking out a loan
especially if you'll be converting existing unsecured debt into secured though debt consolidation.

The second problem with secured loans is that they tend to be for fairly high amounts
and repaid over a fairly long term. This means that the amount of interest you'll pay over the entire term may be substantially higher than you might think. Even with a low APR
secured loans aren't necessarily a cheap option.

Thirdly
if you use a secured loan to wipe out some existing unsecured debt
you may get the illusion that your debt levels have lessened. There's then always the temptation to use your credit cards etcetera to build up fresh debts
so you now have secured AND unsecured debt hanging over your head
and you'll be in a worse position than ever before.

A fourth problem with a secured loan is that you'll by its very nature be removing equity from your home. In other words
the value of your home and the amount of debt secured on it will be much closer. Considering that today's property prices are at record highs
and that many experts are predicting a fall in the near future
you could then be left in the unenviable situation of owing more than your home is worth - that is
you could fall into negative equity.

The fifth problem we'll cover is also related to the removal of equity from your home. Should you in the future wish to take advantage of a refinancing offer to reduce your mortgage costs
it helps to have as much equity available as possible in order to secure the best deal. A secured loan now could harm your remortgage prospects in the future.

So has all this put you off the idea of getting a secured loan? It shouldn't do
as you may still benefit greatly from the financial restructuring one will allow you to do. However
it's a big decision
and this is why you need to be aware of the possible problems first
so that your decision can be as informed as possible.