Loan Types

Western society is evermore demanding and improving one’s living standards becomes a goal for many. Loans are thus of great variety and sometimes with high degrees of attractiveness, as the financial market is very competitive. They can be classed according to a series of criteria, such as their utility (their purpose), their requirements, the applicants they are suitable for and their method of repayment.

According to the level of risk they involve for the lender, loans can either be secured or unsecured, the difference residing in the requirement (or lack thereof) of securing the loan against an asset, its value being directly proportional with the value of the amount borrowed. Therefore, secured loans mandatorily involve guaranteeing the loan repayment with a valuable asset (typically a property, when the borrowed amount is considerable), whilst unsecured loans do not, mainly because they tend to be much smaller in terms of value than secured loans.

Property related loans

Nowadays, loans are very common when trying to pay for a property, primarily residential, as they make up most people’s only chance of buying their own home earlier in life. This category comprises the very popular home loans (mortgages), remortgage loans, home equity loans and bridging loans. It is common knowledge that home loans are long term financial obligations through which one can purchase a new home immediately, committing to repay the capital with interest over a number of years (typically 10 to 25).

The money can be reimbursed through a variety of methods involving monthly payments which either slowly repay the capital itself or cover interests. Investment plans (such as endowment policies) are also used towards repaying a mortgage. Remortgage loans are used in the process of switching from one mortgage type or provider to another, which is also very common as the financial market changes and people are always looking out for mortgages with better interest rates to switch to.

A remortgage loan basically replaces the initial home loan taken out. After taking out a mortgage and taking possession of a property, homeowners usually carry out renovation works, which increases the equity of the property in question – when the difference between the value of your mortgage and the increased value of the property is substantial enough, one can take out a home equity loan, based on that equity. Only one home equity loan can be taken per property. And the latter, the bridging loan, is a short term loan usually required in order to purchase a new home, when the sale of the initial home has not been completed yet.

Debt related loans

Throughout the last few years, more and more people have had to take out debt consolidation loans, which involve merging all your debts into a single one, payable at affordable rates. The new lender will pay off all debts you owe to different creditors, which will significantly simplify your financial situation. If you have a poor credit record, you might not expect lenders to grant you a loan, yet some offer what is known as a CCJ loan, which means you will be given the loan even if a county court judgement was issued against you in recent times (it will show on the CCJ Record, which creditors always check). Naturally, since you present a higher risk to the lender, you will have to pay higher interest rates. You can also apply for a bad credit loan, which will have lower rates but requires that you have equity in your home, or a guaranteed loan, which is similar but can involve other types of collateral as well (such as cars).

Short term loans

If you need money on an urgent basis and plan on repaying it within a short period of time, you can apply for a UK payday loan, which provides you with some funds until you receive your next pay check (the amount you borrow must be smaller than the amount you will receive through your pay check). You can also apply for a no credit check cash loan, which requires that you are a UK resident of legal age and have a regular source of income.

Other types of loans

People often borrow money for personal needs as well, in order to improve their quality of life, which is why holiday loans, personal loans and car loans are available. Student loans are also extremely common and aim to help support people towards obtaining their qualifications, whilst small business loans are meant for those with small funds and potentially profitable business ideas. Also, non status loans are those applying to self employed individuals, who normally experience difficulty in proving their income.