Types of Loans

Unsecured
These type of loans let you borrow money without needing to put up any possessions or property as security for the loan. This makes it accessible to people who don’t own their own home (students and tenants, for example). Bank overdrafts, as well as credit and store cards are a popular form of unsecured loans.

Interests rates are usually between 6% to 19%, with amounts up to £25,000, depending on your circumstances. Interest rates are generally lower the more you borrow, just as in secured loans.
All loan applications go through a credit scoring system based on the results of your credit check. Each lender has their own criteria. Your credit score takes into account factors such as your repayment history with credit cards and previous loans, and your employment history. Unsecured loan applications are usually processed much more quickly than secured loan applications.

Secured
A secured loan uses your home or property as collateral or security for the loan. This means a lower risk for the lender giving you the loan. Under this arrangement, the lender is entitled to repossess your home or property in order to recover the debt if you default on your payments.

Secured loan applications generally take longer to process since the lender will need to have the value of your property assessed besides having to check your credit history. However, compared to unsecured loans, you are allowed to borrow larger amounts (more than £25,000). Secured loans also have generally lower interest rates and longer repayment periods of up to 25 years. Depending on your financial circumstances, you may be able to apply for “flexible” secured loan which will allow you to make over-payments without penalty.

Home Equity
Also known as equity release schemes, these type of secured loans allow you to borrow against the equity you have in your property. Traditionally home equity loans were offered to home owners with fully-paid mortgages. Today, however, home equity loans are also offered to home owners who have been paying off their mortgage for several years.

Mortgages
Having a mortgage allows you to borrow enough money to purchase your own home. This is a secured loan which uses the property you are buying as collateral, with the amount you are allowed to borrow depending on your financial circumstances. The interest rates on mortgages are among the lowest available on the lending market, with loan terms ranging in decades instead months or years.

Debt Consolidation
This involves combining or consolidating all of your current debts, such as credit cards and personal loans, and taking out a single loan to pay them all off. This means you are left with a single lower monthly payment which is paid back over a longer repayment period. Overall, you are paying back more interest but with conveniently lower repayments. Secured debt consolidation is usually offered to homeowners, but places their property at risk should they be unable to keep up with the monthly payments.

Bad Credit
Having bad credit can make it difficult to apply for loans from traditional lenders like banks and building societies. This applies to situations where a history of neglected store or credit card payments, missed rent or mortgage payments or defaults on previous loans have lead to having CCJ’s (County Court Judgments) put on your record. Fortunately, many specialist loan companies may be able to organize credit for you despite this. Your chances are generally better if you’re a current homeowner, although unsecured loans with stricter criteria are also available from some lenders, albeit at higher interest rates compared to secured loans.

Business Loans
These type of loans are different from personal loans and are based on a different set of criteria. For start-up businesses, traditional lenders like banks may provide the necessary capital in the form of a secured loan against your home. Without collateral your options are more limited since new businesses are perceived as a high-risk venture; specifically because most new businesses close within two years, plus being new they have no proven trading record to provide a basis for future long-term stability or growth.

Tenant Loans
This is a type of unsecured personal loan. Since there’s no requirement to put up any security for the loan in the form of property or possessions, tenant loans are accessible to more people. Besides private tenants, this includes housing association tenants, students and other non-homeowners.

In order for your application to be processed, you generally need to be a UK resident above the age of 18 and permanently employed in a job where you work for a minimum of 16 hours per week. Approval of your loan depends on factors such as income, employment status and history, and financial history. A check on your credit history will determine your ability to repay your loan, based on any loan defaults or missed credit card payments in the past. Your application will have a credit score which must meet or exceed the minimum criteria set by lender for your loan, and also affects how much you can borrow and the interest rate it will carry.

Student Loans
This is a type unsecured loan supported by the Government to help students with their living expenses when they enroll in higher education. These loans have among the lowest interest rates and you are not required to start making repayments until after graduation or the end of the course. You are also required to be earning a minimum of £10,000 per annum first. Payments are then deducted by your employer through the PAYE system. For work done abroad, repayments will be made directly to the Student Loan Company, a Government body in charge of student loan administration.

Car Loans
Car loans are generally unsecured loans offered by a many different kinds of lenders such as banks, building societies or specialist car loan providers. In order to qualify, you are generally required to be a UK resident, over 18 years of age with a full driving license, and employed. The specific terms and conditions can vary depending on the lender.

As these are unsecured loans, interest rates can be much higher (as high as 19% APR with some well-known car loan specialists). The APR, or Annual Percentage Rate, is the yearly interest charged on the loan and includes all associated costs of the loan, and is the figure you need to compare among different loan products to determine which one offers the best value.