Secured Loans

Secured loans are one of the most popular ways of borrowing money. A secured loan is backed by property of some sort that is used to guarantee payback if the person defaults on the payments. The most common properties used for secured loans are homes and automobiles, although any property allowed by the bank will suffice. As Britons continue to apply for loans this year, most of them are secured loans.

Secured Loan Application Rate

While loan applications in 2005 increased, they are still below the 2004 figures overall. However, this does not mean that consumers are no longer interested in obtaining loans; more, perhaps, that they are working toward keeping the loans at a lower, more manageable level. Mortgages loans remain at the top of the list, with demand figures at fourteen percent higher than in the final quarter of 2004 according to one report. Britons also researched home equity withdrawals to the tune of four percent above previous numbers. Despite the potential leveling of borrowing, consumers are still looking into a wide range of possibilities for loans.

Other Options

Mortgages are not the only option, simply the most popular. Consumers seem to favor secured loans. The reasons for this are likely varied, although some of the more common motivational factors for obtaining secured versus unsecured loans are the terms. Despite having one's property at potential risk, unsecured loans generally offer lower interest rates and payments. Unsecured loans, such as credit cards, typically have high interest rates and more penalties, and lasting effects from a late or missed payment, for example. So even though the stakes may seem higher, secured loans offer consumers security in the sense that even though payments are long term and carry some risk, they are lower payments, and therefore the likelihood of maintaining them is greater.

Low Risk of Secured Loans

Because of the risk involved for the consumer, such as losing one's home or mode of transportation, this type of loan needs to be taken seriously. Careful budgeting and planning will make the decision much easier, and with the new rules now in effect, lenders must provide consumers with specific details on payments. Secured loans are best used for larger purchase, or from about five thousand pounds and up. Putting your home at risk for a smaller loan is not worth it if you are unable to make the payments on the loan. However, for larger loans, a secured loan may be the only option for many. With the lower interest rates, secured loans are certainly a better option for large loans anyway.

As with all borrowing activities, a person's credit history will have a direct bearing on the rate that is obtainable, despite the property that is offered as collateral against the loan. The better the credit rating, the lower the interest rate. If you have poor credit and are not in need of a large loan immediately, it can be worthwhile to build your credit history using unsecured loans. This means, of course, that payments must be made on time and for the minimum amount at least--but this process can save you a lot over the long haul when taking out a secured loan for a big purchase, such as a home.