Different types of loans: everything you need to know
The world loans can feel overwhelming with all the various types of loans floating about. Loans come in all shapes and sizes with their own varied terms which can range from an informal contract with a friend or family member to a formal, more complex contract with any given company. Whatever the loan, you should make sure the company is part of the FCA.
Most conventional loans prefer an applicant with a good credit score. What’s great is that with so many loans on offer you can still obtain a loan with a bad credit rating through the means of an alternative loan.
Loans can also be specific to the time of product you are trying to obtain, such as a mortgage for a house, a car loan to buy a vehicle or a small business loan to aid your business financially. Therefore, it is good to know what kinds of loans are out there for your benefit.
Types of loans
If you are a University student, you will be offered a student loan by Student Finance England in order to fund your education and livelihood. Once you have started earning above a certain threshold after you have graduated, you will then begin to pay back this loan in monthly instalments. You will be charged interest on the loan from the from the day you take it out.
A mortgage is a loan which is granted to an applicant in order to help them secure a property where they cannot purchase it up front. Since a mortgage is tied to your home, you risk repossession if you fail to pay back what is owed to the lender. Interestingly, mortgages are one of the lowest interest loans of all.
A payday loan is a quick, high-interest, short-term loan which you agree to pay back come your next paycheque. This kind of loan can be spent on anything, from your bills to a car repair.
Essentially, a payday loan will allow you to pay off your financial obligations or any unforeseen expenses before your salary for the month arrives into your bank account, meaning you will only be in debt for a matter of weeks at most.
Payday loans tend to be based online and aim to give you your funds within a matter of hours – one whole day at the most.
Essentially, collateral is used to help you secure a loan. With a collateral loan, you are agreeing to hand over what you own to the loan provider if it so happens that you cannot repay the agreed amount of many: this includes a vehicle, a house or an item of value. The lender is then legally allowed to sell on your property which has now become theirs, as stated by you in the initial contract, in order to obtain the money which, they should have been paid as part of your agreement.
Collateral loans are perfect for those with a bad credit score. Even if you do not have a great credit score, you will have a chance of having your application for a loan approved because you are seen as less of a risk by the lender since they will always make a return in either case.
Guarantor loans are another option for those who do not have such a good-looking credit score. A guarantor is essentially a person who will take a financial risk and pay back the loan on your behalf if you cannot repay. This person will have a better credit rating than you, which is how you are able to get the loan. Your guarantor will have to co-sign a loan agreement which states that they agree to repay your debt should you fail to pay back the arranged repayments.
It is important to note that relying on your guarantor for the repayment can seriously affect your credit score and you may never be able to even apply for a collateral loan or another guarantor loan in the future. So do not treat this as a way to get essentially free money. You should only fall back on your guarantor in the worst-case scenario, but it is a great option to obtain money if you do have a bad credit score.
Small Business Loans
A small business loan is one which is granted to entrepreneurs who fulfil a certain criterion to help them in starting or expanding their business. There are a number of places by which you can find yourself a small-business loan. Such places include banks, non-profit microlenders and online lenders.