Different Loan Types

There are many different types of loan currently available in the UK, both for personal use and business. As with many financial services the jargon and lingo used to describe the product can sometimes make it difficult to decide what loan is best for you. Here is a loan guide to some of the more common loan types to be found.Personal Loan – a facility arranged by your bank, building society or other loan provider that allows you to borrow up to £25,000 to be repaid in installments for a period of up to 7 years. The monthly repayment rate and rate of interest are fixed for the life of the loan. This type of loan is also known as an ‘unsecured’ loan, which means that you do not have to use items such as property as security for the loan.

Home Loan/Mortgage – unless you are very lucky to be able to buy outright, then the chances are that when you decide to buy a house you will need to take out a mortgage loan. There is a wide range of mortgage types available, from Interest Only and Repayment mortgages, to mortgages with flexible features that allow you to combine your mortgage with other accounts such as savings. There are also a number of mortgage products that cater to the base interest rate, which often changes; by offering fixed rates for a set number of years, borrowers benefit from knowing exactly how much they will be paying for the duration of the product. Alternatively, variable rate mortgages change with the base rate, the upside being that if the base rate goes down, so does the interest rate on the mortgage. The amount of money you can place down as a deposit and the period of time for which you wish to have the mortgage will also affect the type of deal you will get. A standard mortgage is for a period of 25-30 years, with repayments normally made monthly. Should you default on payment without prior approval from your lender then you are at risk of losing your property.
Secured Loan – very much like a personal loan, except that the borrower uses some form of collateral to prove that they are able to pay off the loan. Normally this collateral is an item of worth, such as property, and should the borrower default on payment during the term of the loan then the collateral is passed over to the lender as final payment.

PayDay Loan –an increasingly popular type of lending facility, whereby a borrower can receive up to the full value of his or her monthly pay cheque. Despite having high interest rates, this type of loan is ideal for people needing money in an emergency to tide them over between paydays. This type of loan is also ideal for people with a poor credit rating as very often no credit checks are required; you just need to be able to prove that you can pay the money back on your next payday.

Debt Consolidation Loan – designed to help people experiencing difficulty in paying back debts accrued from other loans and bills they might have. A debt consolidation loan puts all of your debts into one place, so rather than having to make many payments to many lenders you simply make one payment against your consolidated loan, which can ultimately reduce your monthly payments and make your finances far easier to manage. When used properly, a debt consolidation loan can prove to be a highly efficient tool.

Small Business Loan – ideal for those with a vision to start their own business, or for those already in business wishing to expand. A small business loan helps the entrepreneur get started on their road to success, without them having to worry too much about how they can afford the necessary start-up costs. Business Loans are often a necessity for small start-up businesses, with most financial institutions offering them.

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