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Secured Loan Debt: What Can Happen?

With increasing amounts of pressure being put on household finances as a result of the cost of living crisis, it’s possible that the idea of taking out a secured loan is starting to look more and more attractive as time goes on.

Whenever you take on any type of debt, it’s generally advisable to do some reading and research first so you’re aware of the pros and cons – and so that you’re aware of the potential consequences if you fail to make payments or default on debts.

Secured loans, in particular, are something to be wary of because you could end up losing your home if you do run into financial trouble later down the line. These products are popular among those who need to take out a larger loan, are looking for a long-term agreement (over five years) or those looking to secure a lower interest rate than the average unsecured loan.

Also known as homeowner loans or second-charge mortgages, secured loans allow you to borrow an amount while using your property or other large asset as collateral (or security). What this means is that if you fail to meet your repayments, the lender could potentially sell your home as a way of recouping what is owed.

As such, it’s advisable to get in touch with your lender as soon as you realise you’re struggling to make your payments so you can potentially negotiate some kind of agreement. 

Defaults are typically recorded on credit reports (1) and this will have an impact on your overall credit score, making it harder for you to borrow in the future… so it is important to face up to and deal with your financial situation, no matter how bad it seems.

Of course, there are advantages to taking out a secured loan over a personal loan and you  will likely find that you’re able to borrow larger amounts, sometimes up to £100,000 or even higher, which is why they’re popular for home improvement projects and other such endeavours.

But they do come with significant risk so it’s important to go in with your eyes open and make sure that you continue making your payments. These loans also mean that you’re likely to pay more in interest over time because it’s charged monthly, so the longer you have the loan the more interest payments you’ll make.

Before taking out a secured loan, it’s advisable to consider what is affordable for you to repay, taking into account your current finances and any future expenses. 

It’s important to have the confidence that you’ll be able to continue making payments on time and in full throughout the lifetime of the loan, even if you do see changes to your financial situation or lifestyle.

If you are struggling with debt at the moment because of cost of living challenges and need a debt help company, get in touch with us today.




Money Helper has replaced the Money Advice Service and brings together the support and services of three government-backed financial guidance providers: the Money Advice Service, the Pensions Advisory Service and Pension Wise.