Types of Loans Explained
There are many options available in today's consumer finance market. Below is a brief summary of the costs and benefits of the different choices:
Personal Secured Loan (up to £100,000)
Secured loans are also known as homeowner loans or personal home loans as they are usually secured as a second charge on your property by the lender as a form of 'collateral' in the event you should default on the loan. This is highly beneficial for you, the borrower, because it means the lender has lower risk, and therefore will be able to offer you a secured loan at a lower APR (Annual Percentage Rate) than an unsecured loan. This is a way for you to use the equity you have built up in your property to your advantage by raising funds cheaply.
Compared with an unsecured loan, a secured loan has several advantages. Most importantly, a secured loan is easier to obtain, even if you have a bad credit history, payment defaults, mortgage arrears and even CCJ's. None of these will neccessarily stop you from getting a homeowner loan, although the terms of the loan, particularly the interest rate, will reflect your circumstances, past and present. Similarly, if you happen to have an excellent credit history, some lenders will offer you up to 125% of the value of your property. You could benefit from a secured loan in this case if the property value hasn't increased as much as you had expected, or if a remortgage just isn't practical.
Above all, obtaining a secured loan is generally quick and straightforward. Because there are no changes to your existing mortgage, you don't need to sell your home or move house in order to secure your loan. The loan can be completed generally in just a few weeks and there tend to be very few up front charges, for example legal fees, survey fees and mortgage indemnity guarantees.
Click Here To Apply For A Secured Loan
Remortgage (usually from £10,000 to £750,000)
Remortgages are a variation of a secured loan. You may be able to raise capital on your home when you remortgage the property. There are many reasons to take equity value out of your home, such as for home improvements, to buy a new car or for debt consolidation. The principle advantage of a remortgage is that the terms of the main mortgage on the property are changed and the whole loan can be set up on a special interest rate. Examples of possible rates are a fixed rate, a discount rate based on a floating bank rate or on some other floating market rate.
A remortgage will generally have the lowest interest rate, but can take several weeks to complete, involve legal fees and may require you to take out additional life assurance.
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Mortgage (can be any amount)
If you are a first time buyer, the range of mortgage products can be daunting. A repayment mortgage with a down payment of 5 to 20% is a typical and conservative choice for a first time buyer. Other options include an interest only option with or without and endowment option, where you save a certain amount of principal each month to be used towards paying off the loan at maturity. Low start, ISD and flexible are other mortgage types you may wish to consider. In any event, it always makes good sense to speak with an impartial advisor who can explain the different aspects of the products available.
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Tenant Loans and Unsecured Loans (£100 - £25,000)
An unsecured loan requires that the lender take on all the risk of default, as the loan is not secured against a property or some similar asset. This type of loan will generally have a higher interest rate and is limited to amounts up to £25,000. Tenants and people who own their homes outright (i.e. no mortgage) are suitable candiates for this type of loan.
Click Here To Apply For A Tenant or Unsecured Loan
Car Finance (£1000 - £50,000)
Depending on your circumstances, you can apply for a special finance loan just for car and motorcycle finance. These loans are provided by specialist lenders who can give you the flexibility to buy the car you want, from the dealer you want. You should always take into consideration your own circumstances, however. If you are a homeowner, a secured loan will provide you with a much lower interest rate on the loan.