Are you planning to get a loan to cope up with your financial difficulties?
The unsecured loan is the money borrowed without any collateral. Due to the absence of collateral, the lender faces a high level of risk. Due to this reason, the borrowing limit will be usually low with high-interest rates.
Personal loans are unsecured loans where you can take loans from lenders to meet any of your personal financial requirements. These loans are provided on the basis of certain criteria's like level of income, employment history, credit history, repayment capacity etc.
Unlike secured loans, personal loans are not secured against any asset or collateral. Since the borrower has not put any collateral like property or gold to avail the loan, the lender cannot auction anything that you own, in case of a default. In addition, due to the greater perceived risk of personal loan, the interest rates are always on the higher side compared to secured loans.
Personal loans can be availed for any financial needs like home renovation, education requirements, marriage related expenses, purchasing electronic gadgets or home appliances, meeting unexpected medical expenses, a family vacation, or any other emergency situation. Since these loans are taken for personal financial requirements, the bank will not monitor how the money was spent by the borrower. Tenure of personal loan ranges between 1 to 5 years and often only agreed on a case to case basis.
If you have bad credit but need money urgently consider applying for a guarantor loan. A guarantor loan is an unsecured loan, where a guarantor (second person) is responsible for paying the debt in case the person availing the loan fails to repay or misses their repayments. This type of unsecured loans are a great option for those people having a poor credit history and struggle to get accepted for a loan product. To get this loan, all you need is a guarantor to affirm for your potential to make the repayments.
Debt consolidation unsecured loans are used to simplify existing and to pay off existing debts by consolidating multiple accounts and payments into one account with one lender and payment.
Typically, debt consolidation unsecured loans can be used for unsecured debts. Money borrowed through debt consolidation unsecured loans can be used to repay debts from credit cards, payday loans, personal loans, and medical bills.
The interest rate for the debt consolidation loan depends on your creditworthiness. If your credit history is good, then you may get this loan at a lower interest rate than what you are paying for your present loan. This enables you to save money on monthly interests as well as monthly repayments. Yet another option to get the loan at a lower interest rate is to extend the duration of the loan term. However, longer loan term means you pay more interest in total.
Payday loans are short term loans usually involving high-interest rates. They are mainly designed to cover short financial requirements. Borrowers pay the money back to the lender when they are next paid by their employer or otherwise repay it over a period of 2 to 12 months. Payday loans usually amount between 100 to 1000 pounds and are not secured through any collaterals.
Various banks issue credit cards to their customers with a maximum credit limit. With these cards, you can buy as little or as much of your limit as you like. Credit cards are mostly used for general spending, accepted by most companies and retailers.
Another type of loan is a bank overdraft. You may get an arranged overdraft agreed by your bank previously, and the charges are usually low.
However, unarranged overdrafts are not agreed upon by the lender previously. These happen when you spend above your overdraft limit or don't have arranged overdraft facility. Unarranged overdraft comes with huge charges.
Choosing the right type of loan is very important. The type of loan you take must fit your situation so you can manage it better at very low risk. Based on the above discussion, you would have got a clear picture of the UK's loan market. This guide can help you know the various types of loans so that you can take an informed decision that will best meet your needs.