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Should I secure a loan to my house?
Taking any sort of loan is a big decision, and you should make sure that you know the positives and negatives of borrowing money. Securing a loan to your house can be beneficial, but there are downsides that you should be fully aware of before you go forward with a secured loan.
If you’ve been thinking about taking out a loan for any reason, you should make sure that you’ve done your research and know exactly what you’re getting into. Any sort of loan is a huge commitment, and you want to know every detail to make sure it’s the right decision for you. We Buy Any House have looked into secured loans, so we can outline the positives and negatives for you.
A secured loan is a loan that you can attach to a financial asset as collateral – essentially meaning that it can be used to pay back the loan if you’re unable to. There are different kinds of loans, such as an unsecured loan which will be based upon your credit score and income, but secured loans are becoming more popular with homeowners as a way to change their finances.
How do I qualify for a secured loan?
There are different requirements for different lenders, as is the case with most loans. To qualify for a secured loan, you will need to be a homeowner and will need the signatures of any other homeowner of the property you’re looking to secure against. You will also need to meet the equity percentage required by the lender you’re looking to borrow from, and they will also run a search on your credit file to make sure that you’re a good candidate for this type of loan. There are several steps involved in a secured loan, and it can take some time to process as you will need your property valued. Speaking to your lender will make sure that you know what their process is and that you have all the correct information.
What are the advantages of a secured loan?
There are several reasons that secured loans appeal to homeowners, such as –
They’re sometimes easier to get compared to unsecured loans, as your house will count as collateral making you a less risky borrower.
If your credit score isn’t too high, securing a loan to your house gives you more reliability as a borrower and will make it less likely that your application gets declined.
Secured loans tend to have a lower interest rate than unsecured loans.
You’re often able to get a much larger amount than you would with an unsecured loan.
These advantages can work really well depending on your circumstances and what you want the loan for. If you’re looking for a large sum of money and your credit score isn’t particularly high, a secured loan may be your best chance at achieving this. Before you go ahead with this sort of loan, however, you should be aware of the disadvantages that come with a secured loan.
What are the disadvantages of a secured loan?
The biggest disadvantage of a secured loan is that as you’re using your house as collateral if something were to happen and you were unable to pay the loan back your house would be at risk. If you think that there is any chance at all that you’ll struggle to make your payments, you should consider a different path. Losing your property is a huge price to pay, and other options may be more suitable for you. Even if you’re confident that you’ll be able to make your payments, you should still take into consideration the risk that a secured loan comes with.
Another risk of secured loans is that they tend to have variable rates which could catch you out down the line. Other loans tend to have a fixed rate, so you know that what you pay back won’t change, but a secured loan will usually have a variable rate. This could mean that after a few years, the rate jumps and leaves you in an awkward position.
There are plenty of other options you can look into depending on what you’re taking the loan out for. If you want to consolidate debts, you might consider looking at a 0% credit card to avoid paying high-interest rates. You will need to look into the various offers available to you to see if this is an option and what the maximum amount that you can get is, as this will differ.
You could also consider a personal loan, but this comes with its own set of risks. Any form of borrowing money is a big decision that shouldn’t be made lightly, so make sure that you do plenty of research about any sort of borrowing that you’re thinking of doing.
If you’re currently struggling with your finances, there are different kinds of support that you can get. You can contact the Money Advice Service for confidential advice.
Are there other ways I can use my house to help my finances?
As a homeowner, you can utilise your house in many ways to help increase your income. If you have an empty room in the house, you could look into renting it out for extra income. You could even rent the whole house if you had somewhere else that you could stay to maximise the income that you could get from this. You can also look at an equity release to free up cash sitting in your property, or consider selling the house and buying something cheaper if you’re struggling with your finances. There are plenty of options available to you, you will just need to make sure you understand the consequences of each and that you’re happy to go ahead with it.
If you’ve been thinking about selling your house, we can help. Get in touch with We Buy Any House today for a free cash offer and see how we can help you achieve your house sale in as little as 7 days.