Secured loans have, in the past, been seen as the poor relation to mortgages, because they were invariably more expensive and were not regarded as mainstream.

While it is still generally true that secured loans are more expensive than mortgages, the differential is no longer as marked as it once was.

The best rates offered on unsecured loans should not be taken as typical, it does demonstrate that someone with a good credit history could be far better off with a secured loan than, for example, using a credit card to obtain money, while the cost of a mortgage is very little less.

Lenders tend to charge higher interest rates, the greater the risk of their being unable to recover the money they lend.

That is why a mortgage has traditionally been the cheapest source of money, since it represents a first charge on the property. A secured loan, on the other hand represents a second charge; that is the lender has to wait in line until the mortgage lender has been repaid before he can recover his money.

But this compares favorably with a credit card, or many other forms of unsecured borrowing, where you could find that you are paying a much higher interest rate. Whats more, even through the loan is not secured on your home and other assets, a lender can still claim repayment from your assets; after those with a higher charge have been paid, of course.

For those with substantial equity within their home, it therefore makes little sense to use any form of borrowing that demands a high rate of interest, when others are available.

Key points: nBorrowing money is less expensive the more security you can offer.

Credit cards may be convenient, but they seldom offer good value unless you repay the balance every month.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The above does not provide individual tailored investment advice and is for guidance only. Always seek independent advice from a qualified financial adviser.

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