TIMES are getting harder 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. Credit is generally tougher
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At times like this, the potential attractions of a loan secured against the property you own become that much greater. Such loans appear to offer significantly better rates of interest than alternative forms of credit, and lower monthly payments if the loan is linked to a standard mortgage repayment period.

But second charge loans – so called because they are the second debt in line to be repaid if a property is sold – also create financial traps for the unwary. Experts warn that they can significantly worsen borrowers' difficulties and even cost them their homes.

Meanwhile, the debt crisis is getting worse. A spokeswoman at the National Debtline, a charity which offers advice to people with credit problems, says: "We have seen a 20% increase in the number of people who have been calling our helpline. The debts they need help with include mortgages and also loans secured against their properties."

Until 12 months ago, with many providers willing to offer personal loans with rates as low as 6.5%, unsecured loans were seen as also-ran products.

Yet the secured or second charge loan market is already massive, worth between £5bn and £6bn a year, with more than £35bn outstanding in loans. In the current credit crunch, where people are unable to access credit in other ways, some predictions see it rising to £10bn a year in the next five years.

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Source: http://business.scotsman.com/business/Second-loans-are-traps-for.4139708.jp