For many, a secured loan is a vital part of modern-day life.
Often used as a stepping-stone to help make monumental milestones in life, such as buying a car or renovating your home, a secured loan is considered by many to be a relatively safe means of borrowing money.
However, as with all kinds of debt, it’s important to be aware that there can be consequences should you fail to keep on top of payments.
A secured loan is secured against your home, which means if you’re unable to continue to make payments towards what you owe you could be forced to sell your property to clear your debt.
Secured loans also typically come with lower rates than unsecured loans, however, you should be aware that there could be additional fees and your property could be a risk should you fail to keep on top of payments.
It’s also important to note that if your home or valuables are taken to recoup late payments but don’t cover the whole balance, you could face court action.
Why do people take out secured loans?
Secured loans are often used to help people with luxury, typically out of the ordinary purchases, such as a new car, or major home renovations.
Due to their low-interest rates, some people also turn to secured loans in a bid to consolidate their debts and can be a popular option for those who haven’t managed to secure a loan elsewhere.
However, when considering a secured loan, it’s important to be realistic about your ability to repay what you borrow. A secured loan is considered to be a priority debt and should always be treated as such to avoid your home being repossessed.
What happens if I don’t pay a secured loan?
As with all missed payments, the first course of action is normally a letter from the loan company informing you that you have missed a payment and asking for payment to be made.
If you find yourself in this situation the most important thing to do is not to panic. When faced with an unpaid bill when cash is already tight there can be a temptation to simply ignore payments demands, however, this only makes matters worse.
Continued failure to repay a secured loan could result in your home being repossessed and potentially end in court action if you don’t pay what you owe.
That’s why you should always speak to your loan provider should you worry about covering the cost of your payments – make sure they are aware that although you are struggling you still want to sort out the problem.
However, if the loan provider continues to seek to take action against you it’s important to be aware of the support available to you.
You should speak to a specialist debt advisor who can guide you through a range of debt relief solutions available and discuss the best course of action for your situation.
Doing so can stop pressure from the lender you owe money to and offer a little breathing space.
How can I avoid secured loan debt?
There’s no denying that for many people a secured loan is a simple way of borrowing money for luxury expenses or to consolidate debts already owed. Here we shine a light on steps you can follow to ensure you don’t fall into financial difficulty should you decide to opt for a secured loan.
- Prioritise your debts: If you owe more than one debt it’s important to ensure you pay them in order of priority. A secured loan is considered to be a priority debt and can have serious consequences if you fail to pay – including having your home repossessed. As such it should always be one of the first payments you make each month.
- Set a budget: Secured loans typically come with a set payment amount over a specified period of time. Be sure to take this into account in your monthly budget to ensure that you have enough cash to cover the amount owed.
- Don’t hide: If you find yourself unable to make a payment towards your secured loan it’s vital that you stay in touch with the loan company. If your situation changes and you know you’re going to struggle to make a payment, let the company know and come to an arrangement to prevent the company from taking action against you.
If you’re struggling with secured loan debt and are searching for free, confidential advice talk to TAD – our resident debt expert.