If your debts are mounting up, shifting the lot over to a secured loan could be an easier way to manage your finances. And, it could cut your monthly payments.
This is especially true if most of your debt is on credit cards, store cards, or current account overdrafts, where interest rates tend to be phenomenally high.
Secured loans have received a lot of bad press over the years, and are traditionally seen as an expensive last resort for customers with poor credit ratings. However, the rates on these loans have fallen notably over the last year, and lenders are increasingly targeting these loans at homeowners with unblemished credit history.
Factor in the skyrocketing cost of unsecured loans, combined with the fact that lenders are rejecting ever more applications, and secured loans become an increasingly viable option struggling homeowners.
A practical example
Take a look at the following scenario, which highlights the potential savings from choosing a secured loan.
John Smith has racked up a total of £50,000 debt over the years, which is spread across various credit channels.
He has numerous credit cards, owing a total of £15,000 with an average interest rate of 17.9%. He has also racked up £4,500 debt on store credit cards (21.9% APR), while his current account is overdrawn to the tune of £2,000 (15.9%).
Unsecured debt
Tired of his rusty old Skoda, John bought himself a trendy new sports car, leaving him with a £20,000 car loan, for which he is charged interest at a rate of 10.9%.
He also took out an £8,500 unsecured personal loan a short while ago to pay for some urgent DIY on his home (8.9% APR).
That brings his total debt to a hefty £50,000, most of which is earning interest at an astronomical rate (a fact which will have a massive impact on his repayments).
Now let’s assume John embarks on a ten year plan to clear these debts. By the time he makes his last payment, he will have repaid a total of £93,236 – nearly twice his original debt.
| Type of debt | Amount | Interest rate | Cost over 10 years |
| Credit Cards | £15,000 | 17.9% | £32,317 |
| Car loan | £20,000 | 10.9% | £32,924 |
| Unsecured loan | £8,500 | 8.9% | £12,865 |
| Current account overdraft | £2,000 | 15.9% | £4,005 |
| Store cards | £4,500 | 21.9% | £11,125 |
| Total | £51,000 | | £93,236 |
Consolidated loan
Now let’s assume that he opted for a ten year consolidated loan from Accepted Loans instead, which comes with a 10.5% typical APR.
Come 2018, John will have spent a total of £80,960 getting debt free. That works out to a saving of £12,275 compared to the original scenario.
| Type of debt | Amount | Interest rate | Cost over 10 years |
| Consolidated loan | £50,000 | 10.5% | £80,960 |
Risks are paramount
It goes without saying that you should not choose a secured loan unless you are certain to be able to meet the payments, as your house is literally on the line. If you do not keep up repayments your home could have to be sold to meet the debt.
Also keep in mind that the typical APRs you see advertised with these loans are not the rates offered to everyone, the rate you get offered will depend on your financial situation. Remember also that most secured loans are variable rate loans so the rate you get initially could change.
Not a silver bullet
As we said at the start, secured loans can help simplify your repayments and cut your overall costs, but they are most certainly not a cure all for your debt problems.
In fact, they will merely fuel your debt problem if you continue spending beyond your means. If you want to take control of your finances you need to address the reasons why you got into debt in the first place. For many that could be as simple as writing down everything you spend each month and then comparing the total to your income.
Unless you know exactly where your money is going - and how much - you will never be able to control your spending. Once you have it all in black and white in front of you it can be easy to identity quick and easy savings. We have previous written about five ways to spend less each month and about budgeting.
Debt consolidation loans are merely part of the cure for debt problems, but used in combination with a more frugal and financially diligent lifestyle a secured loan could help you get debt free.
