Secured Loan and its repayment

A secured loan is a loan that is secured against a mortgaged property. Since a secured loan reduces the lender’s risk as opposed to unsecured lending, it is the secured loan that is preferred by them as, if the borrower defaults on the repayments, the lender can legally repossess and sell the property to recover his money and costs.

As well as possibly losing your property if you default on the secured loan repayments, there may be other penalties. However default is not always intentional and can be unavoidable due to circumstances such as death, accident, sickness or involuntary job loss, which may lead to non-repayment of the secured loan.

To minimise these risks, it is essential to take out payment protection which will cover your repayments on the secured loan in the event of any of the above events occurring. However the disadvantage of payment protection insurance is that it is added to the secured loan amount and interest is charged on the entire secured loan. But it does cover you fully for all the terms of the policy and each lender provides different benefits, so if you have a specific need discuss this with your providor.

The amount of secured loan that can be obtained depends on the equity in your property. The rate of interest depends on your ability to repay the secured loan and your financial circumstances. For instance, borrowers with a clean credit history are charged a lower rate of interest on a secured loan than borrowers with a bad credit history. 

A credit check is always done before offering a secured loan which will include checking all your previous credit transactions, i.e. credit card bill and loan payments. Any defaults or late payments will count against you when determining the rate of interest charged on your secured loan. 

However, there are other options to protect your secured loan which includes an income protection policy and short term income protection. With an income protection policy you are paid a percentage of your income if you lose your job due to accident or sickness. In the case of short term income protection, you will be paid for a year in case of accident, sickness or job loss to protect your secured loan.