If you’re living in the UK and you’re thinking of getting a loan to help you with your current financial hardships, then it’s important to make sure that you know what’s available before you jump in head-first. Different types of loans are more suitable for different scenarios. The last thing you want is to commit to a financial product that’s not right for you.
Here, we’ll look at just some of the different UK loan types available to choose from. Each of these loan types can be compared via Readies.co.uk so regardless of loan type, you’re sure to be able to get the best deal.
1. Unsecured Loans
In simple terms, an unsecured loan is a loan that isn’t directly connected to your assets. The lender gives you your loan based entirely on borrower credit and circumstances. Usually, unsecured loans are typically offered with term lengths between about one and seven years, with levels up to around £25,000. If you default on an unsecured loan, your home won’t be at risk of repossession, but that doesn’t mean that you should take unsecured loans lightly. You’ll still need to make your repayments on time, or you could risk legal action.
2. Secured Loans
A secured loan is a type of personal loan that is tied to an asset, like your vehicle, house, or something else entirely. If you default on a secured loan, the threat is that you could end up losing the asset that you put up as security. In some cases, the lender will repossess the property in question to recover the debt owed. However, with a secured loan, you will be able to access more money and longer terms that might be available with unsecured options. Because of the added security that lenders get from secured loans, they can also be cheaper than their unsecured counterparts.
3. Payday Loans
Payday loans are short-term lending solutions designed to give you the money you need for a very brief amount of time before you get your wages from work. Usually, payday loans are supposed to be paid back within a short amount of time between one and thirty days. At the end of the term agreed, you’ll need to pay back the amount you borrowed, and any interest that’s been gathered too. Payday loans are typically designed for smaller amounts of money than you’d be able to get through a standard personal loan. There are many benefits to payday loans, but they can also be very dangerous when they’re used incorrectly.
4. Credit Lines
A credit line, credit account, or line of credit is a form of flexible loan that allows you to borrow money over a standard length of time. These accounts offer a unique form of lending, but they do share various traits with pay-day loans, credit cards, and overdrafts. Usually, account holders will manage their credit line online, or over the phone, and they’ll be able to draw credit from their account at any time they choose within a specific term. Usually, credit lines can be offered to both businesses and individuals. However, most people consider credit lines to be a more expensive way to borrow, than using standard personal loans.
5. Peer-to-Peer Loans
Peer-to-peer loans are a relatively new form of lending that has only entered the market in recent years. These loans allow you to borrow money from a group of “peers” in a credit bureau or agency. Peer-to-peer loans can be useful for almost any amount of money, and they offer varying term lengths, depending on what you need. Perhaps the most significant benefit of a peer-to-peer loan is that you can generally get a better interest rate from these options than what might be available for a traditional loan. Unfortunately, the money that you can borrow through one of these loans will not be covered by the financial compensation scheme.
6. Guarantor Loans
A guarantor loan is a loan that involves a separate party, such as a legal guardian, parent, or employer, agreeing to meet the standard repayments of a loan if the borrower is unable to make repayments on their own account. Guarantors are legally bound to follow the terms and conditions that were agreed to at the beginning of the loan. If guarantors do not follow the terms and conditions properly, they could be subject to court action. Because guarantor loans give lenders an additional layer of security, they can be used to get access to better deals, cheaper interest rates, and larger loan amounts than standard loans. Guarantor loans can also be useful for people who have bad credit histories.