Taking out a loan can be a confusing business. There are a huge amount of loan products out there, so deciding on the right loan for you can take some time. When deciding on any loan, the general rule of thumb is to always look at the terms. The APR rate, repayment time, monthly payment instalments, interest rates and hidden charges all need to be taken into account.
Secured vs Unsecured Loans
Firstly, you should know the difference between a secured and unsecured loan before applying to borrow money. A secured loan is where the borrower would need to use a high value possession like a house or a car as collateral in order to get the loan. This means if you fail to make repayments on a secured loan, your possession is at risk of being repossessed.
An unsecured loan does not need an asset to be used, you are simply judged by your affordability and credit history. This is less risky than getting a secured loan, if you miss a payment your credit score will be negatively affected, but your possessions are not at risk.
Types of Loan
Commonly termed as unsecured loans for short term borrowing, the amount you borrow, and how much you pay, will all depend on your credit rating. The better your rating, the less you will pay in interest. Personal loans are offered by high street banks and personal lenders.
There are several different types of personal loans, some of which are intended for people with a great credit score, which are generally offered by banks. Higher interest personal loans are often referred to as loans that don’t require a guarantor as they have a similar APR to guarantor loans, or “bad credit personal loans” because they are attainable for people with poorer credit scores.
Peer-to-peer Loans (Also known as P2P)
This type of loan is growing in popularity as high street banks continue to offer poor interest rates to both savers and borrowers. Connecting people who want to lend, with those who need a loan, peer-to-peer lending has revolutionised the lending industry, and is now hotly tipped to replace traditional high street banking. Offering far more competitive terms than banks, peer-to-peer lending is a far simpler and more cost effective way to take out a short term loan. Best p2p lending platforms for investors can be found here.
Having a friend or family member act as a guarantor offers security to a lender by agreeing to take over payments if a default is made. By getting someone to co-sign, a guarantor loan allows applicants with a bad credit score to borrow and rebuild credit.
Although available to those with bad credit, payday loan companies often charge higher interest rates due to the risk of lending to individuals who have a history of missing repayments and defaulting. A bad credit payday loan could be an option if your credit score is low.
Similar to payday loans, these cash loans are suited to people with a poor credit score. The difference being that an instalment loan is intended to be borrowed for a few months rather than less than 30 days.
This is a type of secured loan against your vehicle. You can typically borrow up to 70% of your vehicle’s worth, with interest up to 99% APR. These types of loans could be good if you’ve not been able to get a loan elsewhere and you’re confident you won’t fall behind on loan repayments.
Doorstep loans, also known as home collection loans, are another type of cash loan, similar to a payday loan. The difference between them is that a doorstep loan is dealt with in person at your residence, so you do your application and get your cash in person. You then repay your loan in cash each week or month, when a collections agent visits you.
There are several types of financing available for businesses that need funding. Companies have a variety of ways of getting finance for many reasons, including helping to fund business growth or even for getting help with company debt. Loans for businesses can either be secured or unsecured.