Applying for a personal loans can be a difficult process, especially when you don’t know what kind of loan you should be applying for. There are many different types of personal loans to match different demands and financial situations. If you are in need of a personal loan but aren’t sure which one is right for you, here are some of the basics that you need to know:
Secured/ Unsecured Loan
A secured loan is one that requires you to put forward an asset for collateral in case you are unable to make your payments while unsecured loans don’t require an asset. Secured personal loans tend to be worth more than unsecured personal loans because the asset that you put up represents a guaranteed method of paying back your debt whereas with an unsecured loan a lender is putting their trust in you to be able to pay back your loan, which is why some lenders that offer unsecured loans might require you to present evidence of your income or perform credit checks.
A student loan is a loan provided by a lending institution or public sector organisation that is usually long term. In the UK, a student loan is provided by The Student Loans Company who provide funds to over a million students every year. While interest is applied to these personal loans, in the UK they tend not to be particularly high and after leaving University it is possible for you to defer repayments until you have found reliable, full-term employment that allows you to afford your repayments.
Some types of bank accounts come with an overdraft, which refers to the amount that you are able to overdraw from your bank account should you need it. This means that you can own a bank account with a negative amount of money. Overdrafts differ greatly and it is important for you to know the terms of your overdraft before you attempt to overdraw from your bank account. Certain types of overdrafts charge interest for however long your bank balance is below zero, which can make it more difficult to pay your way out of your overdraft.
Payday/ Short Term Loans
Pay day loans and short term loans are only some of the many different types of unsecured loans that are available. These are small loans with high interest that are designed to pay off emergency expenses if you are running short on money before payday. The high interest rates imply that these types of loans need to be repaid quickly and you can see for yourself the effects of payday loan interest rates on your original loan using our homepage Loan Calculator. To apply for these types of personal loans, you may need to undergo a series of checks – including a credit check and employment – to reassure the lender that you can afford the loan and will be able to pay it back. Over the years, payday loans have undergone many changes which can help people to avoid taking out a loan they can’t afford and accumulating debt that is difficult to repay.
When you spend money using a credit card you are effectively borrowing money from your credit card provider, which is something that not many people are aware of. There are many different types of credit cards with different limits and interest rates, which is something you should research thoroughly before applying for one. However, many people use credit cards to improve their credit score. If you can pay back your credit card debt on time and in full, you will demonstrate to future lenders that you are dependable borrower that will pay back the loan on time.
If you are struggling to pay off debts to lenders, a debt consolidation loan will move all of your debt to one place to help you pay it off. If you apply for a debt consolidation loan, a lender will provide you with the money to pay off your existing debt with other lenders, effectively purchasing your debt. This way, you will only have one debt to repay rather than several that are difficult to keep track of. Some lenders will even improve the terms of your loan when they buy your debt, lowering the interest rates and allowing you to pay back in easy monthly repayments that you have agreed upon.
Generic advice is not a service regulated by the Financial Conduct Authority.