If you’re struggling financially, it might be time to apply for a loan. But if you’ve never applied for a loan before, the process can seem very daunting. You’ll also need to ensure that it’s the right step to take ahead of applying.
Although loans can undeniably be helpful as they’ll get you out of a sticky financial situation, you’ll have to consider the repayment schedule and interest that’s included with it. If you’re unsure as to which loan is suitable for your requirements, here is a brief guide on the main 5 types of loans that you can choose from, along with a short description about it.
Secured Loans
Secured loans are thought of as bigger loans (usually between £5,000 and £100,000 depending on the lender), that are often secured against an asset that you own – such as a house (known as a homeowner’s loan or second mortgage). This is offered up as security for the loan – therefore if you don’t repay it, the lender has the right to take it from you.
Although these types of loans are typically offered at a lower rate of interest (due to the size of the asset), they are usually only accepted if you have sufficient equity in your home. As well as looking at your equity, a lender will also look at how much you have borrowed in the past.
Personal Loans
Personal loans, also known as unsecured loans are perhaps the most common type of loan available. For this type, you won’t have to put anything up as security; after applying for a personal loan, the lender will look at your credit report along with other financial information such as your income.
An example of a personal loan is a car loan that’s used to purchase a vehicle. Available between £1,000 and around £30,000 depending on where you get the unsecured loan from, you can expect to pay an interest rate from anywhere between 3% to 35% over time. They tend to have a higher interest rate due to the fact that you don’t have to secure an asset against them.
Payday Loans
This type of loan is short-term and designed to be paid back within a month – or by your next payday. As well as being short term, you can expect to pay quite a large interest rate. Because of this, they are a very an expensive option -AVOID.
A Debt Consolidation Loan
A Debt Consolidation loan is another popular option as it can pay up to £75,000 no matter what your credit rating. By opting for this, you’ll be able to receive funds when you’re in debt. Offered either unsecured or with a guarantor, they are affordable and give you a loan that will help you to regain financial control.
Bad Credit Loans
Similarly, if you have a low credit score or you don’t have a credit history you can apply for a bad credit loan. Also known as a subprime loan, they are beneficial as they are accessible by almost everyone.
However, with this type of loan, you’ll have to consider the amount of interest that you’ll have to pay and whether you have to put a security against the loan – this is often the case as they are considered as ‘high risk’
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