While there are hundreds of loan products available out there from banks, credit unions, co-ops and the like, generally there are a few wide-ranging “types” each of them fall into. Here we’ll go into each of them in a bit of detail so you can jump off and do your own research!
Personal lines of credit
This is when a bank, building society or financial institution offers you the ability to dip into funds you don’t currently have as a flexible loan you only pay interest on when you use it. Although they may not sound like it, these are the most common loan type in the UK! That’s because arranged bank overdrafts are included in this type! Overdraft facilities are basically a personal line of credit provided to you by your bank in exchange for a fee when you go into your overdraft facility. Some accounts also offer unarranged overdrafts at a cost of a fee and % of the overdraft per day.
In the case of a borrower with no or low credit history, such as a young adult starting their financial journey, someone recovering from a bankruptcy, or a migrant coming to the UK, a co-sign loan may be their only opportunity to get a loan. A co-sign loan is when a friend or family member with a good credit rating can co-sign their loan and take on the responsibility of paying the loan if the recipient stops paying. This can be a good way of getting a needed lump sum of money when no other options are available to you, but it requires a very trusting companion to take on responsibility for you!
Unsecured personal loans
These loans are the most popular type of loan in the UK, especially in areas of fairly low wealth. Unsecured loans are those where you don’t have any assets that you can back the loan against, so the lender is likely to have high interest rates to make up for the risk they take on. Due to this, payday lenders work almost exclusively in unsecured loans, helping people through emergency finances between paychecks. High street banks don’t like high levels of consumer risk, so in the occasional circumstance they’ll offer you an unsecured loan, they’ll give you very high interest rates, normally in the range of 30-50%.
Secured personal loans
Secured personal loans are what we recommend you get if possible – as if our website’s name wasn’t clear enough! Secured loans are those where you back the loan against an asset you own, such as a home, car, boat, work of art or any other valuable possession you own. This is the least risky type of loan for a lender to give you, as if you default or miss a payment on your loan, they can take possession of your asset. The upside for you is that with this kind of loan, you’re likely to have the best interest rate possible and the most favourable terms.
While there are many more types of loans, these are the most common types in the UK if you need a cash advance! depending on your circumstance one of these will help, but we’ve always believed secured loans to be the best option for you, so if you need a loan, always go for one as a first resort!