Loans, what are they? You hear and read about them all of the time, but there are many different options when it comes to them that it can get confusing. Worry no more, as we are here to try and explain some of the loans available to you in what are hopefully easier to understand terms.
So, let’s have a look at what 5 types of loan around today for you to consider and evaluate, starting with:
- A secured loan is named so because it allows you to borrow money against your property. Taking a secured loan means you have promised that if you cannot pay the money back for any reason, then your property will be used to account for it (property can include such things as your home, or your vehicles).
You will find that, in most circumstances, secured loans are offered to home-owners that want to ‘loan’ large amounts of money (usually ranging from around £15,000 up to and past £250,000).
- Being able to take a secured loan from a lender doesn’t depend on your credit rating at all. This is because you are using your property to guarantee your loan, so whether you have the best credit rating around, or you have a poor credit rating that usually stops you from obtaining credit of any time, a secured loan is always available to you (on the basis you have the property to guarantee it against).
- Your circumstances will help to determine the amount of money you can borrow, and over what term you can repay, however one of the biggest indicators to assist with these types of decision is the amount of equity in your property at the time.
- Another name for secured loans you may come across is ‘second mortgages’. Don’t let this confuse you, as it is totally separate from a mortgage you have on your house, and it doesn’t affect them in any way.
- As a secured loan is not linked to your mortgage in any way whatsoever, you do have the flexibility to structure the loan in the way you want, deciding over how long you want it, how much you want, and how much you want to pay back.
- A bridging loan is a type of finance you may consider using if you need large amounts of money for a short term period. For example, if you are waiting on longer-term funding to come through and need money in the interim, this type of loan would be ideal for you.
- As long as you can show that the money you want to borrow you can pay back, there is no cap to the amount you want to borrow (the only cap being what you actually have to be able to afford to pay back).
- Bridging loans are paid out quickly, and as they are short-term options only, they are expected to be paid back quickly.
- These types of loan have higher interest rates and shorter repayment schedules. The reason for the higher interest rates is that it will cover the lender if the finance you are waiting for doesn’t materialise quickly, if at all.
- You can find bridging loans available from mortgage brokers and mortgage / financial advisors.
- Unsecured loans are also known as personal loans.
- Your credit rating will affect your ability to obtain one. If you have a poor credit rating then you will more than likely be rejected, however, as long as your credit score is reasonable then you can apply for this kind of loan.
- No security is needed for you to take an unsecured loan, so you don’t have to be a home-owner to apply.
- Typical amounts that lenders will give on an unsecured loan range from between £1,000 and £25,000.
- Repayment terms on a personal loan usually range from between one and five years at a fixed rate of interest. One point to note on this kind of loan is that the shorter the period you borrow over, the less interest you will pay, but, this then means your repayments will be slightly higher, so ensure that you can budget for these before committing.
- Unsecured loans are typically more widely available and they can be applied for both online and face to face, according to your preferences. Some personal details will be required using either method.
- Payday Loans are available through multiple lenders and avenues across the country.
- Typically, a payday loan will range up to £500 per loan.
- They are named so as they are expected to be paid back within a very short amount of time (one month usually, two on rare occasions), usually on your next ‘payday’.
- There are no real restrictions of the amount of APR a payday loan lender can charge, so in some instances you will find APR in excess of over 1000%.
- On average, a payday loan will cost you around £25 per £100 borrowed.
- Although these types of loans are usually associated with people who are in desperate need, you still need a reasonable credit score to obtain one. If you have a poor credit rating, you stand a chance of being rejected.
- Concessional Loans, also known as ‘soft loans’, are granted to people on terms that are more generous than your usual market loans. The more generous aspect of these loans is provided by either enhanced grace periods and / or interest rates that are below what you would usually expect on standard types of loan.
- These types of loan you would usually find as a potential employee benefit for employees working in a lending institution of some kind.
- Usually used by government and government type agencies to fund projects that they deem worthwhile.
So, there we are, 5 types of loan that we have discussed and hopefully helped you to understand by using straight talking language.
Now, moving on, let’s have a look at the most common thing that is checked (used in most instances; when applying for a loan:
Credit Score – What is it?
- A credit score is a number, three digits long, that is derived from your data-rich credit report, and it is usually one of the main factors taken into consideration when you are applying for credit of any kind, loans or otherwise.
Credit Score – The Facts – Mistakes That Can Lower Your Credit Score
- Paying bills late
- Not using your correct legal name on documents
- Forgetting to notify current / potential creditors of any name changes
- Having debt levels that are too high
Credit Score – The Facts – How You Can Improve Your Credit Score
- Pay bills on time
- Make more than the minimum payment when you can
- Review your credit score on a regular basis to ensure that there are no significant errors – if there are then ensure that you get these corrected
Credit Score – The Facts – Why You Should Care About Your Credit Score
- It can determine whether you will be approved for things including credit cards, car loans, personal loans, etc.
- It can affect the interest rates you obtain
- It can affect your likelihood of obtaining the bigger things in life, including houses, etc.
So now we have looked at credit scores in a little bit more detail, and hopefully helped you to understand what it is and why it is important for you a little bit more in comparison to your previous understanding of them.
Moving forward, let’s have a look at what the types of loans we discussed before can be used for:
- Home Improvements
- Consolidated Outgoings
- Enhancing a property portfolio
- Tuition fees
- Purchase of a car
- Helping to pay a tax bill
- Property Auctions – if finance is needed fast to complete a purchase
- Cash Flow – if a short-term cash boost is required
- Property refurbishments – A lot of high street lenders won’t give finance for property refurbishments, so a bridging loan may work.
- Purchase of a car
- Pay off debt (take advice before following this route)
- Assist with paying for everyday expenses
- Unexpected car repair bills
- Medical Emergencies / Death in the family
- Unexpected travel requirements
- If a bank loan isn’t accessible or an application has been rejected
- You could use a concessional loan if you work for a financial institution and they offer them as part of their employee benefits package.
- If you work in government, you may use this type of loan to finance a project / projects you think are worthwhile.
Of course, there are other types of loans that may have not been mentioned here already, but it is possible for you to research these online in a variety of ways. If you feel that upon reading about them you don’t fully understand them, then please feel free to contact us via this site as we will be more than happy to help you out and clarify any points you may be unsure of.
To search for information online, you are best advised to use a reputable search engine and search for terms including ‘loan comparison’, ‘loans available in the UK’, ‘UK Loans’, ‘Secured and Unsecured Loans’, and any other combination of these or add the type of specific loan you are after.
For more information on loans and their pros and cons, please visit http://moneyfacts.co.uk/guides/loans/
An alternative site to visit, which promises the low-down on loans, giving you all of the information you require is https://www.uswitch.com/loans/loans-guide/
Loans can be very confusing and very complicated, no matter how easy it appears or sounds to be to arrange. If you have any doubt about them at all, don’t proceed until you fully understand what you are signing up for, and always read the paperwork first in any case.
We hope that this guide has been helpful, and will assist you in any choice you make, and we would welcome any comments and feedback from you to let us know what you think is good and what could be improved.
For now, we will leave you to consider the information you have been reading and hope that it helps you to decide on the right course of action for you and any situation you may find yourself facing.
Top 10 most popular loan companies (correct as of 22/05/16)
The top 10 most popular loan companies, as of 12:30pm on May 22nd 2016, are as follows: (Please note, these could cover none or all of the loans we have discussed)
- Ikanko Bank Loans
- HSBC Personal Loan
- Zopa Personal Loans
- Tesco Bank Loans for Clubcard customers
- M&S Bank Loans
- Citrus Loans Personal Loan
- Avant Credit Personal Loans
- Tesco Bank Loans for non-Clubcard customers
- Moneyway Loans
- Santander Standard Loan (Internet)
List above, as per results found on http://www.money.co.uk/loans.htm
As you can see, pretty much all of the loans listed above are personal loans, and this is potentially down to the fact that they are the most common of those we have already discussed.
By following the link listed slightly above, you can search the other types of loans we have divulged into already, and it will bring you back the most popular results.
The money.co.uk website also gives you information on other types of loan that we haven’t touched upon yet, so it is well worth a visit to have a look through the information it provides and become further self-informed about the options available to you when it comes to loans.
Loans in the UK
A loan can be helpful to you providing that you are using them for the correct reasons, but it is worth remembering a few things including:
- That you are responsible for paying money your lend back, at the agreed rate, and in the agreed time-frame. Failure to do this could lead to action being taken against you, and depending on the type of loan you have taken, can result in your possessions being taken.
- When applying for a loan, in most cases, the searches that the institutions have to undertake to ensure your eligibility will register on your credit file. This means that if you already have a poor credit score you could worsen it further via these searches, so ensure that you understand this fully, and ensure that the loan you are choosing to apply for is definitely the correct one for your needs.