Types of Loans

About Loans

There are different kinds of loans...

Alot will depend on the amount of money you wish to borrow and whether or not you are a homeowner. Depending on your circumstances you will find that there are two different kinds of loans available to you; namely a personal (unsecured) loan and a secured loan. They both have different borrowing limits and maximum repayment periods. Out of these two kinds of loans there are a number of different types of loan that we go into greater detail on below.

The only other kind of loan you will come across is a debt consolidation loan. This kind of loan, once applied for will provide you with one loan which you will move all your debts into. For example if you had a few credit cards which were maxed out and an overdraft that you were using, you could take out one loan to cover them all.

Personal (Unsecured) Loans

A personal loan otherwise know as an unsecured loan, is based on you own personal credit rating. This rating is obtained from one of the main credit reference agencies - CallCredit, Equifax and Experian combined with your bank or lender. For a personal or unsecured loan you will be able to borrow up to £25,000 and you will be allowed a maximum of 10 years to repay the loan back. A personal or unsecured loan can be used for a numer of different types of loan;

Home improvement loans - Perhaps you are planning to build onto your existing property to accommodate your growing family, or you want to remodel your kitchen. Whatever the reason home improvement has become a brilliant way of improving the value of your home. A personal unsecured loan of between £7,500 to £15,000 is a great way to finance this. Your annual interest rate would be around 5% and you could repay it within a 5 year period, which makes it a reasonably cheap way to borrow the extra cash needed. Your payments would be fixed and normally you can choose to repay the borrowed amount over one to five years.

Wedding loans - Nowadays getting married can be a rather expensive affair, the average wedding costs around £20,000 and as a result wedding loans have become popular. A personal unsecured loan of between £15,000 to £20,000 is a great way to help you cover the cost of your wedding. Your annual interest rate would be around 5% and you could repay it within a 5 year period, which makes it a reasonably cheap way to borrow the extra cash needed. Your payments would be fixed and normally you can choose to repay the borrowed amount over one to five years.

Car loans - Buying a new car is always an exciting prospect, the problem is not many of us have the spare cash to cover the cost. You can get a Hire Purchase Plan which will require you to put down a deposit and then commit to monthly installments. The other option would be to get a personal unsecured loan and the rate on such a loan is almost always better than Hire Purchase. Perhaps you were thinking of purchasing a new car for around £6,000? If you were you would do better to increase the amount to £7,500 to take advantage of cheaper interest rates.

Holiday loans - We recommend that whenever possible you should try to pay for your holidays with savings. However sometimes an unexpected trip comes up like a faraway relatives wedding or funeral. If so then a personal unsecured loan of £7,500 and up will get you the best interest rates of around 5%. This would be one very expensive holiday so it may make more sense to fund such a holiday through a credit card or overdraft.

Secured Loans

If you are needing to borrow a larger amount of money than £25,000 you will need to apply for a secured loan. A secured loan is taken out against an asset; usually a house. It’s perfect as lenders feel more secure in knowing there is a fixed asset to claim back if repayments are not met. You need to appreciate though that if you default on your repayment, the lender can take your home to cover their loss. For a secured loan you can borrow between £5,000 to £125,000 and you will be allowed a maximum of 25 years to repay the loan back.

Debt Consolidation Loans

For some people when you have alot of different debts it may make sense for you to get a debt consolidation loan. What this means is you will apply for one loan which you will move all your debts into. For example if you had a few credit cards which were maxed out and an overdraft that you were using, you could take out one loan to cover them all. You would have to agree to set monthly payments which would cover the total amount of your debt. Normally if you were to take out such a loan it would be with a lender who would then speak to your other creditors and make them aware of such an arrangement.

There are a number of other ways to manage your debt if you are in a difficult position such as debt management plans, IVA debt solutions, debt relief orders or in a worse case scenario bankruptcy. This should be your last choice after exhausting all other options. You may find it helpful to speak to one of our dedicated debt advice providers across the UK, the will help you find the very best debt solution for your situation.