Loans

Getting a loan is a relatively simple process, although choosing one can seem complicated. This needn't be the case, and we are here to help you to better understand the options open to you in the UK loans market.

While the range of loan products out there may seem extensive, if not excessive, they really only boil down to two main types: secured and unsecured. These, and a selection of the other popular loan products are outlined below for you as we feel the better informed you are, the more comfortable you will be in taking out your loan.

Secured Loans:

A typical definition for this type of loan is one that 'requires the borrower to provide some form of collateral to act as security for the amount being borrowed'. So what exactly does that mean? Well in simple terms it means the borrower signs a contract stating that they have ownership of something of value that is at least worth as much as the loan amount, and that if they do not repay the loan as agreed, the lender has the legal right to force the sale of the object used as security in order to recoup the lent money. Generally the security takes the form of the borrowers home, which is why secured loans are often referred to as homeowner loans.

Unsecured Loans:

An unsecured loan is one that does not require the borrower to offer security for the loaned amount. This makes them suitable for non-homeowners (as property is generally the only type of security accepted) and also those who do not wish to put their home at risk from repossession. Generally speaking this type of loan is quicker to arrange, although they will tend to carry higher interest rates as the lender is exposing itself to a greater risk of not being able to recoup the money lent.

These are the two major loan types, all other loans are based upon these and are effectively extensions to them, the most common of these are covered here.

Adverse Credit Loans:

These are a specialist loan type for borrowers who have had financial problems in the past, and are in most cases a secured loan, meaning they are only available to homeowners (although this is not always the case). The borrower's credit history is a major factor used by the lender to determine whether to approve them for a loan or not - having an adverse credit history flags the person as being a greater risk for non-repayment, and so most lenders will reject them. Adverse credit loans are designed for people with a poor credit rating, and offered by lenders willing to take on the higher-risk borrowers.

Business Loans:

As the name suggests, these loans are intended for businesses - their usage ranges from start-up funding in order to get a business up and running to expansion loans to allow the business to grow as their market does, to cash-flow loans to help out businesses that are having trouble getting money owed to them from debtors whilst having to pay their creditors. Many of these variations of business loan are unsecured, with the business' assessed by their previous performance and future projections.

Car Loans:

Buying a new car is a popular use for a loan, and as such lenders offer loans tailored specifically for this purpose. Car loans are in the majority of cases unsecured, making them available to homeowners and non-homeowners alike. Some lenders will offer additional benefits with their car loan products, such as a free vehicle history check, an inspection from an approved mechanic or some form of breakdown cover - this will vary, and not all lenders will offer such extras.

Consolidation Loans:

This is a special form of loan (usually secured, although not always) that is used to replace various other debts of the borrower, leaving them with just one loan and therefore only one monthly repayment to make. With this type of loan, the money lent is used to repay the existing debts, effectively transferring that debt to the new consolidation loan. While they can make managing finances easier, they do tend to charge a high rate of interest and so are best used to replace high-interest debts such as credit and store cards.

Home Improvement Loans:

These can be either secured or unsecured, depending on the amount that is being borrowed and the preference of the borrower. For smaller amounts, such as those required to redecorate or fit a new kitchen an unsecured option will be offered, for larger amounts for structural work for example, the loan will be secured against the home as this allows for higher borrowing limits.