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Are there different types of loans?

Yes. There are two main types of loans – ‘secured’ and ‘unsecured’.
A secured loan is where the loan is ‘secured against’ something you own. This collateral is typically a house. This is why they can also be called ‘home owner loans’. If you take out a secured loan and fail to keep up with repayments, the lender has the right to force the sale of your security (e.g. your property) in order to cover the repayment of your debt. This gives them extra reassurance when they are lending, and means secured loans are available for much higher amounts, and for longer timeframes, than unsecured loans.
An unsecured loan is not secured against something you own. That’s why this is also known as a personal loan. Instead, lenders approve unsecured loans based on a borrower’s creditworthiness, and whether they can afford the repayments. Unsecured loans come in lots of different forms, for example personal loans, credit cards, store cards, and student loans.

How do I know which is the right loan for me?

There are a number of things to consider when picking a loan.
  • Are you a home-owner? Secured loans need a security as a collateral, typically a property.
  • How much do you want to borrow? Typically, an unsecured or personal loan could be anywhere from £100 to £25,000, but it varies by lender, with some lending more, and others less. Whereas, a secured or homeowner loan could be anywhere from £10,000 upwards but is often linked to how much your property is worth
  • How long would you like to pay the loan back? A personal loan is normally repaid across several years, whereas a homeowner loan can be paid back over many more years.
  • What is your budget? All loans will require repayment. Repayments are split over the length of the loan, so changing the length of the loan can increase or decrease the repayments to help them fit your budget

How do I compare loans?

Loans come in different shapes, so it can be tricky to compare them, and work out what is the best deal for you. However, the following values will help you compare costs –
  1. Monthly repayment – this tells you how much you will be paying on a monthly basis. This can change depending on the loan you pick (for example it might have an introductory interest rate)
  2. APRC / APR – ‘Annual Percentage Rate of Charge (APRC), gives you the annual cost of a loan, together with fees and costs, as a percentage. Because some loans have introductory rates, whereas APR will use just the one rate, the APRC also takes into account what the interest rate after the offer period is likely to be. Using the APRC to compare loans can be useful, as although one loan may have a lower interest rate. by the time you add in all the charges, it could be more expensive
  3. Total amount repayable – this is how much you will repay both of the amount that has been lent, and the interest being charged on it. This can be useful when you are considered different terms.

How do I know what I have to pay each month?

The amount you repay, your ‘repayment’, will depend on several things. One of the most important factors is whether you have selected to have a fixed interest rate, or one that varies.
If you select a fixed rate, then you will probably pay the same amount every month for as long as the fixed rate lasts, and your lender will provide confirmation of this in writing.
if you have selected variable, then this will change often a variable rate is linked to the bank of england base rate, and this can mean your repayments can both increase and decrease.

Can I get a loan?

Getting a loan depends on a number of factors –
  • how much you’d like to borrow, and how long for
  • whether you own a house or not, and if so, how much it is worth
  • what your credit history is like
  • what your income and expenditure is
  • what debts you already have
Each lender will look across these factors to decide whether or not they can offer you a loan. As each lender is different, you may find that some lenders will say yes, while others say no.