Types of Loan
What Different Types Of Loan Are There?
As we have access to all of the major Secured Loan Lenders in the UK, and also many of the specialist lenders, we have an almost complete spectrum of loans available to suit nearly all circumstances and situations. So what different types of loan are available?
You will often hear loans referred to with a variety of different names. Debt-consolidation loans, Adverse Credit Loans, Home Loans, Equity Loans, Equity Release Loans, Little or No Equity Loans, Secured Loans, Unsecured Loans, Bank Loans etc. etc.
Loans Explained
Putting things into their simplest form, if you borrow money and repay it back in one form or another, you are likely to be taking out a loan. A loan is a loan is a loan. They are often referred to by a different name according to the situation or circumstances in which the loan has been taken out. For example, if you have a mortgage on your home, all you have is a loan for a large amount of money, taken out for a long period of time, normally 25 years, and the loan is secured against your property. If you have a hire-purchase or lease purchase facility on your car, all you have is a loan secured against the vehicle. If you have an overdraft, all you have is essentially an authorised or, more often than not, unauthorised bank loan! Even a Credit Card is a type of loan. You have borrowed the money and you have to pay back some of the debt each month. Although with interest rates on most credit and store cards being so high, making the monthly repayments often only amounts to the interest, so you pay little or nothing off against the actual loan or debt. This is why credit card repayments go on for ever and ever, and Credit Card Companies just love you to take out more and more of their cards. Here are some of the more common names referred to:-
Debt Consolidation Loans
If you have Credit Cards, Personal Loans, Store Cards etc, you may notice that they attract quite a high rate of interest. These forms of credit are notorious for being an expensive way of buying things. Some store credit in well known electrical chain stores is as high as 29% APR! That is a astronomical mark up when the Bank Of England Base Rate is currently running at 4.75%!
By Consolidating all of your expensive credit into one cheaper loan with a more favourable interest rate can save literally thousands of pounds. Many people think that a reduction of a couple of percent in the interest rate is not worth the hassle. This could not be more wrong. Even with interest rates as low as they are, any reduction can mean a great saving. A reduction in interest rate from 8% to 6% is not 2% as it may appear at first sight, but a staggering 25% reduction in interest. So if you have cards and credit with interest rates above 10%, you should really consider the possibility of switching the debt to a cheaper loan. The savings could be enormous.
Equity Loans, Home Loans & Secured Loans
These are all loans whereby you borrow against the equity in your home. In effect you are taking out a second mortgage to raise money. Often cheaper than a re-mortgage as normally there are no solicitors fees, valuation fees or arrangement fees.
Little or No Equity Loans
If you are a homeowner looking to get a secured loan, but you have very little or no equity in your property, you may think that you have little or no chance of getting a secured loan. Well now there are lenders that we have access to that will lend money to homeowners up to 125% of the value of their home.
Unsecured Loans
As the name suggests, this type of loan is taken out with nothing offered as security, i.e. a house or a car. In order to get an unsecured loan, you have to be a good credit risk. In other words, you need to have a good credit reference, and have shown historically that you pay back existing debts and credit on time, don’t miss payments, have a stable employment record, and a good residential status. Although unsecured loans are offered to non-homeowners, i.e. tenants, the better rates are usually offered to homeowners, due to the increased likelihood of the loan being repaid. It is a common misconception that an unsecured loan places less risk on the borrower than a secured loan. If the borrower is a homeowner, and defaults on the loan, the lender is quite at liberty to seek a court order to place a charge on the borrowers property in order to ultimately recover the debt. It is also more common for unsecured lenders to seek to recover a defaulted loan more vigorously.
Bridging Loans UK
This type of loan typically carries a higher interest rate, than most other loans. It is a short term loan taken out when you want to, for example, buy a new property, but have not yet sold your existing property. The interest rates are normally calculated monthly, and you will usually need 25% or more equity in your home.