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Struggling with your Mortgage?
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Need to consolidate debt but been refused loans?
Debtors are often unable to obtain unsecured loans without agreeing to an exorbitant interest rate. Instead, they are typically forced into a secured loan, offering property (such as a house, or car) as security / collateral for the debt. Unfortunately, if the debt is not paid, the debtor can lose this property and wind up homeless.
Clearly, if you are already in personal debt, you should think carefully before offering security to consolidate. Since you are already in debt, you should not assume that you will be able to balance additional burdens, and you should not risk your property. However, there are situations in which a debtor should consider incurring additional personal debt.
If you currently have outstanding debts which are accruing interest and you also have property and a stable income, then you may wish to consolidate your debt in order to reduce interest payments. Indeed, if you are unable to pay off the entirety of an existing personal debt, you might calculate that the interest payments will greatly exceed the original debt.
Faced with such a dilemma, it makes sense to consider offering security instead of continuing to pay interest. By taking a new secured loan you can easily pay off outstanding unsecured loans, but you must be certain that you can pay off the new secured loan, or else your collateral could be repossessed.
The most common type of secured debt is a mortgage loan. Within the UK, these are typically offered by members of the Building Societies Association, which has total assets exceeding £350 billion. The first of these societies was founded in Manchester during 1775, and members would pool their assets in order to both offer and obtain loans. Currently, more than fifteen million individuals are members of a building society. However, since the 1970s, building societies have been increasingly replaced by banks and the percentage of mortgage loans offered by building societies has dropped from 96% to 66%.
If you are attempting to obtain a secured loan, you should attempt to negotiate the lowest interest rate possible. As a debtor, it is your obligation to convince the lender that you are a safe investment and you should never accept an initial offer without trying to negotiate. Of course, lenders will naturally attempt to obtain as much money from you as possible.
However, since you are offering collateral as security, you should insist that the lender offer a rate which is substantially lower than an unsecured loan, otherwise you should be willing to walk away. If you are obtaining your loan from a bank where you maintain an account, you can often obtain a lower rate.
Although unsecured loan interest is typically fixed, secured loan rates are often variable, and can change in regard to UK base rates and the lender’s own reasons. Make sure you understand whether a rate is variable and anticipate that the rate might increase. If you cannot afford a higher rate you should take advice before accepting the loan! You must also understand what might happen if you pay your debt early. In some cases, you could actually be penalized! Most importantly, be absolutely certain that you can pay the loan. It can be easy to avoid payment on unsecured debt, but defaulting on a secured loan will have severe consequences.
If you are worrying about mortgage arrears or secured loan debts, please contact our personal debt helpline today in confidence using;
- 0800 018 6868
- Lines are open 24 hours / 7 days and your call is FREE from a UK land line.
