Different Types of Loans: Deciding Which Loan is Right for You

Since there are so many different loan options for you to choose from, it is important that you take enough time to choose one in particular that will match your needs exactly. The more you learn about each of these borrowing options, the better of a decision you will be able to make. The loan you choose will determine a lot of important things, including your likelihood of paying it back on time. This research will help you out tremendously with finding the right financing solution.

Unsecured Loans

An unsecured loan is given to a person based almost entirely on the state of their credit. These loans can be difficult to get if you don’t have very good credit, but they do come with low interest rates if you are approved. One of the best things about these loans is that you won’t have to worry about having your home or car repossessed if you default on yours.

The fact is that no collateral is needed is definitely one of the best things about this borrowing option. There are a lot of banks and credit unions that give out these loans, so you will have numerous lender choices to explore.

Secured Loans

In order to get a secured loan, you will have to put some sort of property down as collateral. The property you use must have a value that is equal or greater to the total amount that you are borrowing. A lot of people use their home or vehicle as collateral for these loans. The biggest drawback of secured loans is that they can be quite risky. It is particularly important that you make sure you’ll be able to pay back a secured loan on time. If you fail to pay back the loan, you will most likely use the property you have put up as collateral.

The great thing about secured loans is that the interest rates tend to be pretty reasonable, and the borrowing limit is fairly high. This means that you will be able to borrow as much as you want, as long as you have property that is worth enough to back it up. There is also the fact that you don’t need to have good credit to get approved for one of these loans. As long as you have proper collateral, the lender will be more than willing to look past a low credit rating.

Payday Loans

Payday loans are very common throughout the UK for a number of reasons, including the fact that they are easy to get and offer fast cash for those who are in a dire financial situation. These loans are short-term, so you will be required to take care of the balance on your account with the next pay cheque you receive. Your interest rate will most likely be higher than a personal loan, but there are ways to keep it to a minimum.

It is very important that you take the time necessary to find the right payday loan lender, because not all of them are reasonable or even legitimate. Credit is usually not an issue when applying for a payday loan, so your low score probably won’t get in the way of approval. The more time you spend looking for the right lender, the better off you are going to be.

Instalment Loans

An instalment loan is paid back over a course of months or years in regular payments (usually once a month.) There are a lot of good things about these loans, such as that you’ll have plenty of time to return the money you have borrowed. One of the drawbacks of instalment loans is the fact that you will be paying more interest. Instalment loans are usually given to those who borrow larger amounts of money.

Guarantor Loans

A guarantor loan involves a middleman of sorts, such as a friend or family member. This person, who is called the “guarantor”, agrees in advance to pay back the loan if you are not able to. A lot of people are getting these loans because they have fairly low standards/requirements for the borrower, but finding a qualifying guarantor is another story.

The lender will only accept someone as a guarantor if they have their finances in order. This person must have a solid credit rating/history as well as a stable employment history and adequate income. You can get one of these loans with bad credit as long as the person who is acting as your guarantor has a high score.

Car Loans

If you want to finance a new car, a personal loan is probably the way to go. This type of loan is considered a secured loan because the collateral is the car you are buying. If you stop making payments on the loan, the car is repossessed by the lender. These loans can have terms that range from one year to five or six, depending on the amount you borrow.

Peer-to-Peer Loans

While it may be true that peer-to-peer loans are a pretty new borrowing option available to the public, it is one that you should seriously consider taking advantage of. You will find that these loans have very high borrowing limits and pretty good interest rates. Private lenders give out these loans, so they are not covered by FSCS (Financial Services Compensation Scheme) like traditional loans.

What to Consider Before Getting a Loan

No matter which type of loan you decide to get, there are always certain things that you will need to take into consideration. It is crucial that you spend enough time looking for a good and reliable lender, because not all of them can be trusted. You should also make a point of trying to get the best possible interest rate by comparing loans online. When you do this research before making the leap, you will be able to get the money you need with the fewest strings attached.