Many homeowners are getting into problems after signing up for a secured loan. Research has shown that nearly 13 million people have take out loans to consolidate their existing debts with more than five million believing they will always be in debt.

Often when credit cards are at their limit, mortgage lenders have refused to help and applications for unsecured loans are refused, secured loans are often considered with many believing they are consolidating their debts into a personal, unsecured loan when they are in fact using a loan secured against their home. Research has shown that secured loans should only be considered appropriate for about 3% of people in debt but the adverts often imply that they are suitable for the majority.

If you have a loan secured against your home, and you default on the home, your lender goes through the Land Registry to place a legal charge on your home. The lender of a secured loan takes second place to a mortgage lender so if the home is repossessed and sold, the secured loan company would only get its money back once the mortgage has been finally paid off. Although many of the advertisements prominently tell customers that their homes are at risk, many people still believe that the only loan secured against their home is the mortgage and don't realise that their home is in jeopardy.

If you are amongst the minority, for whom a secured loan is suitable, make sure you check the small print:

• It is tempting to borrow more than you need, repayment terms sound reasonable but the more you borrow, the more interest you will pay
• Make sure you can afford the repayments without relying on your bank overdraft to cover the costs
• Check the interest rates. Lenders are only obliged to offer two-thirds of customers the advertised rate with a higher rate being charged depending on your credit score
• Check for penalty charges. Some lenders have strict regulations on when and how to pay.

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Article referenced from http://observer.guardian.co.uk/cash/story/0,,2169943,00.html