Choosing the right loan can go a long way in seeing that your borrowing is cheaper, the risk is no more than you can handle, it is easier to manage, and you’re getting the ideal amount of funds needed for your project.
With this guide you can pinpoint the loan type that works well for you.
Types of Loans
There are two main loan types, which are broken down in sub categories. They include:
- Secured Loans and
- Unsecured Loans
Secured loans include monies borrowed to you with a property attached as security or collateral. This kind of loan entitles the lender to recover their money by selling off your property if you cannot settle your loan.
Unsecured loans on the other hand allows you to borrow money without attaching any of your belonging and collateral. It involves just collecting the loan and paying back over an agreed period.
There are other forms of loans, however, that include seperate types of collection. They are:
Peer-to-peer: Peer-to-peer lending is a system that matches borrowers with lenders with competitive interest rates for both parties. The process is usually carried out through online channels.
Credit Union Loans: This kind if loan is gotten through a self-help cooperative where members who live or work together combine savings to help each other with credit.
Payday Loan: This loan type borrows you money over a relatively short period; normally until your next payday. It can be gotten quickly but involves exorbitant interest rates.
There are different types of loans under the secured category. These loans tend to borrow higher than unsecured loans because there is security involved. Let’s break them down individually.
These loans can only be accessed by loanees who already own homes, just like the name suggests. The amount you would be able to borrow largely depends on the value of your home.
Homeowner loans are normally in the region of £1000 to £2.5 million, can be paid back between 1 – 35 years – depending on the agreement, and can be borrowed up to a certain percentage of your home’s value depending on how much you wish to borrow.
Bridging loans involve loans that you can access quickly and pay over a short period of time because you’re already expecting money to pay back soon. This kind of loan is mostly used by property investors to buy new homes when their old homes are about to be sold or used in cases of auctions.
The loan covers two main types which include open bridging loans which have no set date and can run for up to a year or longer, and closed bridging loans which elapses at a fixed date, especially when the borrower has a timeframe to get the money back.
Borrowers can access £5,000 – £250 million in a quick period. But one downside to bridging loans is that the interest rates are higher than other forms of lending.
This involves a loan you get to finance the purchase of a vehicle. Until you settled the debt, the vehicle is not yours. Normally the payment period takes 1 – 5 years but can vary according to the lender involved. A credit check is carried out to confirm your creditworthiness, and the amount to be lent depends on the value of the car.
Unsecured loans do not attach securities and as a result, they do not normally exceed £25-40,000.
Different types of unsecured loans include personal loans that span from £500 to £40,000 and can be paid back with 1-7 years; peer-to-peer loans which normally lends between £1,000 – £35,000 and can be repaid in 6 months – 5 years; guarantor loans set within £1,000 – £10,000 and can be paid in 1 – 5 years; and Bad credit loans which borrows £1,000 – £25,000 to be settled in 1 – 5 years.
So, now you can make the right decision on which loan type to go for. Remember to shop around to get the best and cheapest interest rates. And when you get the cheapest rate out there, make sure you go through the plan thoroughly to be certain your aren’t going to be extorted through other means.