Secured loans, like those available from Nemo Personal Finance, operate on the same fundamental principles as their unsecured counterparts, with one important exception: the risk to the lender is lessened through registering the debt against some form of security – usually, the lender’s home. Remember a Nemo loan is secured against your home so must ensure you can keep up with repayments.
This concept has wide ranging consequences, as it decreases the risk to the lender through increasing the risk to the borrower. As a result, lenders tend to be more willing to provide those who approach them with funds, whilst the potential fallout is much more significant for the borrower.
How secured loans work
Secured loans are very simple to understand: you borrow money from the lender with an agreement to pay it back over a set period of time. The money that you’re awarded is ‘secured’ against an asset, generally your house, but sometimes your car or another object of value.
The agreement that exists between you and the lender explains what will happen if you fail to repay your debt: the asset that it’s secured against will change ownership. In the case of your home, for example, a failure to make repayments may lead to eviction, repossession and resale.
Generally, secured loans provide you with access to larger sums of money than a personal loan. Most personal loan providers will only lend up to £15,000 whereas, a secured loan can lend up to £500,000 in some cases. People commonly take out a secured loan to fund home improvements, trips abroad, or equipment to support a hobby. Irrespective of what the money is spent on, the principle remains the same: if you fail to meet your repayments, you risk losing your asset.
The benefits of secured loans
The risks associated with secured loans provoke one obvious question: why does anyone choose a secured loan over its unsecured alternative?
Well, despite their risks, secured loans also carry many benefits. The loan is secured against a valuable asset, and from the lender’s perspective this significantly decreases the risk associated with it. As a result, lenders tend to be willing to lend more than they would to unsecured borrowers, therefore, if you need a substantial amount of capital, this can make them a very attractive option.
If your credit rating is less than perfect, you may struggle to borrow via other routes such as a personal loan. You don’t need the very best credit rating to get a secured loan. But your credit rating is still relevant. If your credit rating is worse, you could attract a higher interest rate.
Interest rates for secured loans can be relatively lower than payday loans.
On the downside though, just like every other loan procurement facility, if you miss your payments, you could lose your property. And the temptation to carry on spending are very serious dangers. You need to maintain some level of discipline to make the most of secured loans.