Secured loans: is it time to worry?
With leading economists and the Bank of England warning that interest rates may soon be on the rise, it's only natural to look at your personal finances and assess how this might affect you. Those with rather lacklustre savings accounts may feel cheered but, for many, the prospect of higher mortgage payments and increased repayments for certain other forms of credit may spell restless nights.
Individuals who have fixed-rate mortgages may have the least to worry about, at least in the short to medium term. However, with most fixed term deals being for no longer than five years, the prospect of being shifted onto a higher rate ought not to be far from anyone's mind. It can pay, quite literally, to keep an eye on the best available deals. Although it is not usually possible to shift mid-term without incurring hefty charges, it is sensible to know where to try and shift your mortgage when a fixed term ends.
As for credit cards, there are still plenty of 0% interest deals. Those offering the longest term are, as ever with such products, frequently reserved for individuals with the best credit rating. If that's you, it is a mistake to pass over the opportunity. Even if your credit rating is not as good as it might be, it may still be worth applying for a credit card that offers 0% interest on balance transfers. Failing that, there are cards that offer lower rates than the industry standard. You can often get a fair indication of your chances of being accepted for a zero or low rate card by using one of the online platforms that soft search your credit file.
When it comes to secured loans, matters might appear trickier. This is understandable, given that most have interest rates that are not fixed for the life of loan but, instead, shift in response to changes to the base rate. Repayment periods are long - usually much longer than for unsecured loans. Finally, there are also often substantial penalties for redeeming a secured loan early.
What, then, should you do in respect of a secured loan?
First, if you do not currently have one, think hard about whether you really need one. If your credit rating is good, an unsecured loan may well be a cheaper way to borrow. It is also far less likely to put your home at risk in the event that you default on the repayments.
If, however, you already have a secured loan, do not panic. Interest rates have not risen yet. If you are currently meeting your repayments comfortably, consider whether you have any spare money you can set aside to use if interest rates do rise beyond your comfort zone. Put the money in the highest interest savings account that you can find, which also offers relatively quick access (a month's notice or less is sensible). You might also want to consider how you could decrease your outgoings or increase income. Finally, if repayment problems do materialise on the horizon, keep your lender informed. It may be possible to agree a repayment holiday or, in rare cases, to renegotiate the repayment plan. One of the many excellent debt advice charities may also be able to help.