We all have different financial needs that require different types of loans. But with so many loan types and options available, the process of finding and applying for a loan can be confusing. So you need a small amount for an emergency. Which type of loan do you apply for? What if you need a large amount for an investment or a major purchase? Which type of loan is the right choice?
To help you answer your question, we have created this quick guide to the different types of loans available in the UK and what are they for.
Mortgage loans are the type you apply for if you want to buy a house and you can’t pay for it upfront. Banks offer mortgage loans where the house you want to purchase will serve as collateral and you’ll a monthly mortgage to keep paying for years. In the event that you fall behind your loan payments, you risk foreclosure of your home.
Auto loans like mortgage are loans secured on the property you are purchasing. In this case, your vehicle is the collateral. If you want to buy a new car and you need down payment or a financing plan, an auto loan is what you need. Auto loans are also available at the bank as well as at the car dealership where you are purchasing your vehicle. Just remember loans from your dealership may come with higher interest rates than from the bank.
Student loans, on one hand, are loans offered for students. If you want to go to college and you need money to cover for tuition, you can apply for a student loan. There are student loans you can borrow from the government and from private sectors. If you want lower interest rates, borrowing from the government is the better bet.
Personal loans come in different forms and are available for one purpose. It is used to meet any personal expense or emergency. If you have your own personal emergency fund and you happen to find yourself in a financial emergency with no one to turn to, applying for a personal loan makes sense. Personal loans are usually easy to get approved for and it’s ideal whether your need is small or large. But like other types of loans, your rates and terms will depend on your credit rating.
Small business loans
Are you in the process of starting a business? Then you should try looking into small business loans. These loans are granted for entrepreneurs to help fund start-ups or business expansions. There are entities in the UK that offer this type of loans. Small business loans are also available at major banks.
Consolidated loans are loans that aim to help you simplify your debts. If you have several outstanding debts you need to pay but you’re having a difficult time getting ahold of things, you can take out a consolidated loan. The loan will pay for most if not all of your outstanding debt including high interest credit cards. These means fewer monthly payments and hopefully lower interest rates.
Bad credit loans
If you have bad credit and you aren’t eligible for loans available from your bank and major lenders, this is where bad credit loans come in. Bad credit loans are specifically offered for people with issues on their credit rating. This means approval is often a sure thing, good news for consumers with history of defaults or CCJs. On the downside, the interest rates can be really hefty.