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While many borrowers stay away from secured loans, favouring unsecured debt under all circumstances, some borrowers are more aware that it can pay to choose a secured loan. For example, where interest rates have gone up suddenly, and credit cards APRs have shot up, consolidation of current debt into a single monthly repayment using a secured loan can make very good sense.

However, whether or not this is the case depends on the precise maths used by banks to calculate your repayments. The rapid rise in house prices, whilst making it increasingly difficult for the first time buyer to get on the property ladder does have some benefits. It has left most home owners in the south east with a considerable amount of equity locked up in their homes, which if cleverly managed or released through a secured loan, could save them thousands of bounds in interest payments over 10-25 years due to secured loans typically having a far lower interest rate than credit cards and a significantly lower rate than other unsecured debt. Naturally your home is at risk if you do not keep up the repayments, but if the lender and the borrower do their homework, there should be no risk of this eventuality.

When a bank issues a secured loan they take into account a number of factors. Different customers will get different interest rates depending on their situation. The main factor in calculating interest rates for secured loan is the customer's credit rating. A good credit score means a person has behaved well with credit in the past, making repayments on time, and not defaulting on debts. If a person has a good credit rating, the bank considers them a good risk, because the person is likely repay the debt on time and in full.

The better a person's credit score, the less risk the bank takes, and this lower the cost of loaning money. A lower cost means fewer charges and a lower APR rate for the customer. A secured loan can be taken out over a period of 10 to 25 years. This means that the monthly repayment amount will be more affordable than a shorter term loan. With a secured loan people can borrow a large amount of money at a low interest rate. When compared to credit cards and personal loans, a secured is loan the ideal method to repay existing debts with higher interest rates, therefore saving money.

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