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Tackling your debts

What is secured debt and do I have any?

Posted 24 November 2015 by Shelley Bowers

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If you’re wondering what secured debt is, here’s the answer!

So perhaps you’ve heard the term ‘secured debt’ or ‘secured loan’ and you’re wondering if you have any. In fact, it’s unlikely you have any if you don’t know what it means! That’s because if you are signing up for a secured debt it is usually made very clear to you.

It can come under a number of other names, such as a:

• Mortgages – which could be a first or second charge mortgage

• Homeowner, secured loan or home equity loan

• Debt consolidation loan (although not all debt consolidation loans are secured)

• There are also loans that are secured against other assets than your house – some car loans are secured against your car for example.

What is secured borrowing used for?

Clearly, if you are taking a mortgage then that’s used to help you purchase your home.  But other types of secured borrowing are usually used for high value items that are going to cost you over £10,000, although some secured lending can be for as little as £3,000. Typically people take secured loans to fund things like home improvements (maybe an extension or a new kitchen).  Other uses include buying a new car, or a caravan for your weekends away, or to consolidate any other loans you have. 

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What does the ‘secured’ part mean?

When the lender advances you the money, it takes a legal “charge” on the asset (the house, or car for example).  If you don’t keep up with the repayments as agreed the charge allows the lender to take possession of the asset, sell it, and use the proceeds to repay what you owe them. This is their security.

This is what usually makes secured loans, usually, a little cheaper than the unsecured version of borrowing. Unsecured lending is more risky for the lender because, if you don’t pay, it is more limited in what it can do to try to recover the debt from you. Of course if you continue not paying, the lender will start to use measures to recover its money. This could include sending you letters, calling and emailing and maybe even appointing a debt collector.  The lender will also register a default on your credit file. All this will damage your credit report and make it harder for you to get credit in the future, or at the very least, more expensive.

Do I have secured debt?

So, it’s likely that by now you know the answer to this question. If you have a mortgage on your home, it will be secured. If you don’t pay your monthly mortgage payments, they will, after a lengthy process of trying to get you to pay, go to court to get permission to repossess your home.

If you have other loans and you’re not sure whether they are secured or not, get your paperwork out and have a look at what you signed. They will have to say, very clearly, on the documentation that it is a secured loan and what the consequences will be if you don’t keep up your repayments. It might look something like this:

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

Why is this important?

It’s useful for you to know the difference between secured and unsecured lending because if you’re finding yourself struggling with unmanageable debts, you should make sure you pay your secured loans first. These are classed as priority debts simply because you risk losing your home if you start to part-pay, pay late or miss payments altogether.  Similarly if you fall behind on a secured car loan you could find the provider taking action to repossess your car.

If you’re thinking of consolidating your debts using a homeowner loan, or if you are struggling to make any of your loan repayments, please have a chat with one of our advisors first. You can use the ‘contact us’ options on the left of the page to speak to our trained advisors.

Free and impartial advice about all aspects of debt and the different kinds of borrowing is available from the Money Advice Service

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.