What if I Canâ€™t Afford to Keep Up My Secured Loan Payments
You may be asking that question before you actually apply for a secured loan, perhaps while youre still trying to decide between secured loans and personal loans. Its exactly the sort of question you should be asking at this stage. Remember if youre being offered a longer repayment term and maybe a more attractive rate of interest on a secured loan thats precisely because the lender has some security. That security is your home. Youll have seen the statutory warning, "Your home may be at risk if you do not keep up repayments on a loan secured on it." Those are not empty words and you should take due note of them.
That warning should make you pause to reflect on your situation. Are you in a relatively secure job where you have the benefits of full pay during normal periods of sickness and the possibility of redundancy is remote? Is your income for the foreseeable future such that you can comfortably afford the repayments?
If the answer to both these questions is, "Yes," then your only potential worries are going to be unexpected long term sickness and unemployment if it does strike out of the blue. Youll have been offered insurance against these disasters and you would be wise to take it up either through your lender or elsewhere.
Protection of that kind is particularly important with secured loans because, as the warning tells you, the lenders are securing the money they lend you by means of the charge on your property. If you dont pay back what youve borrowed according to the agreed schedule they can enforce the charge by repossessing your home to sell it to recover what they are owed. Theoretically any balance would go to you. However it wouldnt be as simple as that because, almost certainly, you already have a mortgage on the property which enabled you to buy it in the first place. Thats often referred to as your "First mortgage" Once this situation has arisen theyll want their money back too.
If the cause of your problem was one of the events covered by insurance you wouldnt get into arrears because the insurance would cover your payments during the emergency. If you had taken out the insurance that is!
If youve taken all these things into account and taken steps to insure against unforeseen calamities thats fine. Youll be entering into the commitment with your eyes open and all should be well.
Going back to the original question of what happens if you cant afford to make your secured loan payments. If youre asking this question after youve taken on the loan that would suggest that your circumstances have changed since the period began, or are about to change. Presumably this is something you couldnt have foreseen at the outset or you wouldnt be in this situation now. If your loan is covered by insurance then you need to check whether or not what has happened to you is an insured event. If you believe it is you must tell both your lender and the insurance company without delay. Theyll take charge and you shouldnt have anything to worry about. If its not covered by your insurance or you didnt take out insurance you still need to act promptly. Its worth checking to see whether any other insurance you have might cover the situation.
If insurance cant help and youre on your own so to speak the first thing you must do is get in touch with your lenders and tell them how youre fixed. Although secured loans give them the option to have you evicted from your home so that they can sell it thats the last thing they want to do. Repossession is a costly and time consuming process involving courts. Lenders would far rather come to some arrangement with you that you can manage, and keep repossession as a last resort.
For this to be possible you must contact your lenders as soon as you become aware that you have a problem and preferably before you miss a payment. The more you allow arrears to build up the more difficult it becomes for them to help and the greater becomes the threat of repossession.
So the blunt answer to the original question is you lose your home and find yourself and your family on the street. However, if you keep calm and speak to your lenders early when problems becomes apparent it shouldnt come to that. One option might be to sell your property quickly, once you realise youre cant come to a manageable arrangement with your lender, pay everyone off and start again. There are people who can arrange that for you too. Just dont panic!
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The Home Loan Shop