Times are getting hard for hundreds of thousands of homeowners. Personal loans, formerly cheap and easy to obtain, have started to dry up or are suddenly much more expensive. Credit card applications are being rejected and credit is generally much harder to find.

For these reasons, a loan secured against the property looks attractive as such loans appear to offer significantly better rates of interest than alternative forms of credit. This results in lower monthly payments if the loan is linked to a standard mortgage. These are called "second charge loans" - so called because they are the second debt in line to be repaid if a property is sold which can create financial difficulties for those unaware of the implications.

Generally the debt crisis is getting worse with more people seeking help with their credit problems including mortgages and loans secured against their properties.

At the moment, the secured or second charge loan market is worth between £5bn and £6bn. This looks set to rise to £10bn a year over the next five years. Many people who take out second charge loans are borrowers who may already be facing credit problems. Latest research shows that nearly 13 million people have taken out loans to consolidate their existing debts - of these, more than eight million go on to build up further debts.

For some borrowers, a second charge loan only forms part of the equation. There are cases where people have been on fixed rate mortgages as well as running up other unsecured debt. They then take out a secured loan running in parallel with their mortgage - when the fixed term expires they have to pay a much higher mortgage rate which they cannot afford. The issue becomes more critical because unlike their previous unsecured credit or even their card debts, they now have a loan secured against their home. If they default on the secured loan the lender can have a legal charge on the borrower's 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 get its money back when the mortgage has finally been paid off.

If you do decide to take out a loan there are some tips that may be worth considering:
» Don't borrow any more money than you need, you will only spend it and have more interest to pay
» Make sure that the repayments won't leave you overdrawn
» Check out the interest rate. Lenders are obliged to offer two-thirds of customers the advertised rate but the rate you are offered may be higher depending on your credit score
» Look at the small print for penalty charges - some lenders have strict rules for making payments and impose penalties if payments are not made on time
» Read the payment protection insurance carefully and make sure it covers your needs

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Article referenced from http://business.scotsman.com/business/Second-loans-are-traps-for.4139708.jp