Types of Personal Loans

Bad Credit

You may be classified by loan companies as having “bad” or “adverse” credit if your credit history contains instances of financial problems. A number of events can lead to this, such as having previously missed paying your credit card or store card bills. Any loans you have defaulted on in the past, as well as missed mortgage repayments will bring about a bad credit rating. A County Court Judgement or CCJ against you, or even declaring bankruptcy in the past, are also examples of situations that will adversely affect your credit history.

If this applies to your case, then it will be difficult to take out a personal from a traditional lender such as a bank or building society. However, many loan companies specialise in lending money to individuals with bad credit, even to borrowers that banks classify as “high risk”. People with adverse credit are in fact their main clients, and such lenders even offer bad credit personal loans with no fees.

Many bad credit lenders operate mainly on the Internet and offer the choice of secured and unsecured loans. The only important difference from a standard loan is the type of terms that they offer. Aside from the amount you can borrow being significantly lower than a standard loan, the interest rates also tend to be much higher. A credit check is still conducted in order to determine how much they can offer to lend you. And as with any other type of secured loan (if that is your choice), your property is in as much risk if you default on your repayments.

Debt Consolidation

If you have a number of current debts that you wish to settle in a single payment each month, you may want to consider taking out a debt consolidation loan. By arranging this, you can effectively replace your existing debts with a single loan at a lower interest rate which you pay for with a lower monthly repayment. This also has the obvious benefit of simplifying your finances considerably, freeing you from having to keep track of each and every payment you need to make each month in favour of just one.

In the same way as a regular personal loan, a debt consolidation loan can be arranged either as a secured or unsecured loan. If you opt for a secured loan, you will be offered a lower interest rate but keep in mind that you risk losing your home if you default on your repayments.

The terms being offered on the market for debt consolidation loans will vary from lender to lender so shop around first to make sure you are getting the best value. Besides the interest rates themselves, compare the repayment periods being offered to avoid being saddled with interest over a long period of time despite the possibly low monthly repayments. A flexible loan is also a good deal since this allows you to make larger payments to shorten your debt if your financial outlook improves downstream.

Secured Loan

A secured loan requires collateral in the form of property such as your home. This being the case, a secured loan is an option open to homeowners only. This type of loan offers a lower interest than unsecured loans because the collateral involved implies less risk for the lender. You will also be allowed to borrow a larger amount of money. The obvious downside to taking out a secured loan is that if you fail to keep up with your repayments, you ultimately risk losing your home; your lender, in worst-case scenarios, can take your property in order to settle your debt.

Actual terms and conditions for secured loans vary between lenders. In some cases however, if you happen to have an excellent credit rating, you may be offered to borrow an amount even greater than the equity you have in your property. Interest rates are usually lower for large amounts, but the repayment periods tend to be longer. For large debts, the loan repayment term is usually around twenty five years.

Take note that a personal loan secured against your property is not associated to any current or future mortgage taken out on your home. In other words, a personal loan of this type is considered a separate debt and repayments are handled through direct debit.

Unsecured Loan

Unsecured loans are the most popular type of personal loans taken out in the UK. Credit cards, store cards, charge cards, and even bank overdrafts are all considered unsecured loans, as are unsecured personal loan products commonly being offered by lenders.

Unlike secured loans, you are not required to put up collateral, making this type of loan accessible to more people besides homeowners. Students still living at home and tenants are able to apply for an unsecured loan.

Despite not having the loan secured against property you own, lenders have a number of options they can resort to if you default on your repayments. The consequences to your credit history can be damaging if you fail to settle your debt, and legal action can always be taken by your lender in extreme cases.

To take out an unsecured personal loan, you usually need to be employed either part-time or full-time, over eighteen years old and a resident in the UK. Loan amounts may range from £500 to £25,000, although £15,000 is the usual limit. The interest rate can be as high as %12, depending on how much you borrow. Larger loans are typically offered lower interest rates. Advertised interest rates tend to refer to large loan amounts. Terms can be from one to seven years for repayment.

For additional cost you can opt to avail of payment protection as an insurance for your payments.