Secured loans are big news. Everywhere I look I see adverts for homeowner loans and headlines about payday loans and student loans.
However, in the new age of austerity, we’re all a little more afraid of getting into debt and the words ‘borrowing’ and ‘lending’ come with warnings from prophets of doom. Are these warnings warranted?
Of course, to some degree, yet perspective is important: I believe there’s still a place for sensible, cautious borrowing backed up by sensible, cautious lending. Look at it this way: some things are a little too far out of our reach financially; through borrowing wisely we can enhance our lives without ruining them with mounting debt.
Looking back to look forward
Reckless lending by banks in the US and UK led to out-of-control spending and our economies have been stuttering and stumbling along since the credit crunch of 2008. Thankfully, financial regulators on both sides of the Atlantic have stepped in with tough new rules to prevent another such financial disaster, with banks and building societies now obliged to apply stricter and more stringent rules to those of us wanting to take out mortgages or homeowner loans.
So if a homeowner loan is something you’re considering, you can rest assured that systems are in place to insure you’re not being offered unreasonable amounts of unmanageable debt.
What is a homeowner loan?
Is a homeowner loan like a mortgage? And why would you want to take one out? Well, a homeowner loan is borrowing which is secured against your property: so your home is your guarantee to the lender that you’ll make the agreed payments.
There are a whole range of reasons why you might want to take out this type of loan. Home improvements, for one – these can be really costly and it’s not always convenient or possible to pay for them out of our savings. But often they are a necessary part of owning your own home.
Debt consolidation is another reason to take out a homeowner loan – for example if you have lots of smaller loans that you’d like to bring together into a single monthly payment.
Before you panic about the idea of securing a loan against your property, it’s worth noting that in the new age of responsible lending you’ll be well advised along the way by the company organising your homeowner loan: they’ll explain everything the loan entails and talk you through your options, so by the time you sign you’ll be quite clear about what you will be repaying, when and for how long.
As with any financial commitment, the best advice is to budget, budget, budget and make sure you can make your repayments before you sign up to anything.