Types of Loans
When it comes to borrowing money, people in the UK have a ton of choices to go through. There are banks, lenders and other financial institutes that provide different types of loans to people who are in need of urgent money.
There are different types of loans when it comes to borrowing a small amount of money like small loans, no guarantor loans, 6 month loans, etc. But if we have to narrow down all of these loans, there are two types of loans –
- Secured Loans
- Unsecured loans
These two loans are further categorized into different forms of loans which people can borrow from according to their need. Let us look at the various forms of loans that people can borrow from.
Different forms of Secured loans
Secured loans are loans which people can borrow against an asset. The asset can be a house, a car, jewellery or any other valuable item. The asset is a collateral which the lender can take away if you miss your loan repayments.
Mentioned below are some of the secured loans which you can borrow –
Mortgages and Second Mortgages
Mortgages are basically loans that you can borrow to buy a house. In this type of secured loan, your house acts as a collateral. So when you miss few of your monthly repayments due to any reason the lenders can take away your house and sell it to get their money back.
Mortgages and Second mortgages are a long-term loan which can run up to 35 years. The interest rates are fixed or can vary depending upon the mortgage you choose.
A Homeowner loan is a form of a loan which you can borrow against your house. The amount that you can borrow depends on the value of your house. It also depends on various factors such as your credit history, income, any ongoing loans, etc.
These loans have a term up to 20-25 years. Interest rates that are charged are fixed throughout your loan term. However, if you miss repaying this loan, the lender can repossess your house if there isn’t any option left.
Logbook loans are loans which you can borrow by keeping your vehicle as a security. It can be a car, a van or a motorbike. Just like in the homeowner loans, the amount which you can borrow depends on the value of your vehicle.
The repayments of the logbook loan can be done in a time period of 2 to 15 years. Interest rates are fixed and do not fluctuate during the loan term. If you default on this loan the lenders can seize your car.
Pros and Cons of Secured Loans
- Secured loans have low-interest rates compared to unsecured loans
- You can borrow a hefty amount when it comes to these loans
- The loan term is long, it helps you to make your monthly financial plans for the future
- If you have a poor credit history you can borrow a secured loan unlike personal loans which require a good credit score to get your application approved
- Your asset is at risk if you miss your loan repayments
- Though the interest rates are low, they are not fixed, they can vary during your loan period
Different Forms of Unsecured Loans
Unsecured loans are loans which do not require an asset as a collateral to borrow money. Most lenders nowadays are providing these loans to people who have a poor credit history. They are mostly targeted to the people who need a small amount of money and don’t have any asset to keep as a security.
Mentioned below are some of the unsecured loans which you can borrow –
Small loans are short-term loans which are usually of very low value. With these loans, you can borrow up to £3,000. You do not have to necessarily have a good credit background in order to get this loan.
The interest rates are higher and the loan has to be repaid within a few months (1-12 months).
A Payday loan can be borrowed from lenders for a month. You have to repay these loans on your next payday (next monthly wage). The amount you can borrow is very low, you can get credited up to £1,000.
There are not any interest rates charged on a payday loan. You just have to pay a fixed fee for a month irrespective of the amount you borrow.
No guarantor loans
A guarantor(Co-signer) is someone who can vouch for you if you default on your loan. But not everyone is ready to back you when you are in need of urgent money. In a situation like this, you can opt for no guarantor loans which do not require a co-signer to get your loan approved.
These loans are basically like small loans where you can borrow up to £3,000 and repay it between the time period of 1 to 12 months.
Pros and Cons of Unsecured Loans
- It helps you to borrow what you want instead of going for a large amount
- No paperwork
- The application process is easy and you can get the loan amount within a few minutes of submission
- You can borrow a small amount even if you have a bad credit score
- The interest rates are higher than secured loans
- The time duration is less to make the repayments for these loans. So it’s for your own good that you borrow these unsecured loans only if you can afford it.
How to Get Secured Loans for Bad Credit?