Secured loans in the UK ended up with a pretty bad reputation after all the financial fuss of ’07 kicked off.
There is no doubt the secured loan lending practices of the past were just as bad as some of the crazy mortgage offers around at the time with up to 125% of the value of your home being available to borrow.
Much like the banks, when the easy money stopped flowing and the industry started to collapse the secured loan companies couldn’t get funding and many of them turned to dust.
By 2009 14 lenders had left the market leaving only about 3 still operating.
Despite demand for debt consolidation going up, the money just wasn’t there to lend.
Like mortgage companies in the UK the secured loan providers had to get rid of risk by tightening criteria and restricting ‘loan-to-values’ of secured loans.
By late 2010 it was observed that demand for secured loans was up and consumer confidence had improved.
2011 is well underway and the options for borrowers are continuing to improve with cheap rates available that beat many unsecured loans.
Moneysupermarket have always had access to the some pretty good UK loan deals, including the most competitive secured loan offer in the market, for as long as I can remember and they still do with a 6.7% rate from Central Capital > See here <.
Loan-to-values are lower than they were but it is now possible to borrow up to 85% of the value of your home (including other secured debts) and by spreading payments over a longer term they can make other short term debts more manageable.
Of course if a debt lasts longer, more interest could be charged over time so a secured loan could cost more in the long run but could still be a more affordable way to get back in control of debt.
For example, credit card debt can last for a very long time if only the minimum amount is repaid.
This really good credit card calculator: http://www.whatsthecost.com/creditCard.aspx shows that a £10,000 credit card debt on a rate of 17.9% paying a minimum amount of 2% will take 64 years to pay back and cost nearly £27,000 in interest!!
A £10,000 secured loan at a rate of 6.7% could be repaid in 5 years for less than £200 per month and the total interest charged would be less then £2000.
Or, £10,000 at 6.7% over 25 years would cost less than £68 per month but the total interest over 25 years shoots up to just over £10,000.
Still far better than just paying the minimum on a credit card!
Not everyone will qualify for the lowest rate but other rates are available depending on individual circumstances.
In short, a secured loan is a much better option that a credit card when it comes to long term borrowing.
Credit cards are evil and should only be used for emergencies or the whole balance should be cleared each month.
If a secured loan is used to consolidate credit card debt the best course of action is to pay off the card, cut it up and close the account.
Another alternative to a secured loan is a ‘further advance’ from a mortgage lender which is essentially a ‘top up’ on an existing mortgage and with mortgage rates so low, it could work out even cheaper than a secured loan.