The Secured Loan Minefield: Treading Carefully Across Dangerous Territory

Anyone getting a secured loan has to be careful of the various dangers and pitfalls that surround the issue. Secured loans generally get a bad press – horror stories about families losing their homes abound, and it seems that one can't walk down the street without being assailed by a tale of woe by friends or relatives. But this is mere myth and conjecture. Used sensibly, secured loans can be harnessed to provide an excellent base for making key business decisions, especially by those who might not have a shining example of credit history. The following should provide you with a guide to safely negotiate the dangers of the secured loan world.

The key difference to note is that between remortgaging one's house and getting a secured loan. Both have advantages and pitfalls, but in many circumstances a secured loan may be the better option. For instance, a borrower may have opted for a mortgage with a good fixed or variable interest rate. In return for this, there'll undoubtedly be penalties for early repayment, thus penalising those who manage their finances effectively. Also consider the slew of fees and charges that happen when one chooses to remortgage their house: many borrowers reel at the thought of valuation fees, legal fees, lenders charges and a host of other charges and taxes. In the short term, this can adversely affect the consumers' financial state, and may well push them into the secured loan route. Higher interest rates for remortgaging will undoubtedly mean that the amount they will have to pay back over the term agreed – typically 25 years – will actually be surprisingly high. Contrast this to the secured loan option – typically, they will have no fees or charges to set the ball rolling, thus making it a great option for getting quick capital.

The sheer speed of actually getting the money can be astonishing. Whilst remortaging can take a long time to actually see any money, secured loans can be turned over within 48 hours. This means that business ideas can be quickly jumped upon and capitalised upon before the moment has passed. Bearing this speed in mind, the tricky subject of debt consolidation comes to the fore. With multiple credit card debts as well as numerous smaller loans, the interest can soon mount up and swamp the consumer. With a secured loan, the borrower can quickly group all the debts together and take advantage of the common 7.7% interest rates that seem to go hand in hand with secured loans. This would certainly be a great improvement over the commonly found 30% or more rates that plague the world of credit cards and personal loans.

One must also be cautious of the ASU insurance that is often sold alongside the secured loans. This effectively covers the borrower for any instance of injury and sickness, which may render them unable to pay the secured loan back. Borrowers must use caution when being offered ASU cover – often exorbitantly priced, it is sold off the back off the wariness of the borrower. What with all the scare stories circulating around about the dangers of secured loans, who wouldn't be a little mistrustful of their broker trying to force yet more money out of them? There is a flip side to this coin however. If your health is at a low ebb, taking ASU insurance can be one of the best decisions you ever make in your life. Just check with other brokers or friends that the policy represents good value for money – if not, you may have to start looking elsewhere for your loan needs.

With the recent agreement that secured loans regulation should be handled by eh Financial Services Authority (the FSA), it seems that the once dubious-seeming world of secured loans are being taken into a more credible realm of existence. This is good news for borrowers – as well as the added protection offered by the FSA (an independent body), the increased regulation has attracted more of the bigger banks previously only interested in offering remortgages and personal loans. The now see the merits of offering secured loans, and can do so at much more competitive rates than smaller companies who spring up and disappear overnight. For the consumer who is thinking of taking out a secured loan, this can only be good news.

This article has explored the relative merits and disadvantages of the secured loan world. You – as the borrower – will have learnt that with careful treading, the secured loan can be a useful and powerful borrowing tool. So often consumers with little capital or poor credit ratings can be discourages from pursuing their dreams in business. Secured loans provide a means that won't involve humiliating engagements with the bank manager or desperate pleas friends. The world is changing, and it looks like secured loans are very much pivotal.