The Different Types of Loans You Should Know About
The Different Types of Loans You Should Know About
Thinking about taking out a loan but not sure where to begin? There are many different types of loans available in the UK, and the range can feel a little overwhelming. In this article, we’ve broken down the options to make it easier to understand and make an informed decision.
What Are Some of the Main Different Types of Loans?
While there isn’t one clear number, you can expect at least 15-20 types that are commonly recognised. These can often overlap or be broken down into smaller categories. Below, we’ll explain some of the main categories to help you get a clearer picture of your options.
What Are Some of the Main Different Types of Loans?
Secured Loans
Secured loans use something valuable, like your home, as security. If you’re unable to keep up with repayments, the lender may take the asset. However, because the loan is less risky for the lender, they may offer you better rates or larger loan amounts, even if your credit score is lower.
These loans can be a good option if you’re sure you’ll be able to make the repayments as planned.
Unsecured Loans
Also called personal loans, unsecured loans let you borrow relatively small amounts for a set period. You won’t have to provide an asset as collateral, so there’s less risk on your end.
Keep in mind, though, you may need a high credit score to get approval or a good interest rate.
Guarantor Loans
A guarantor loan is when someone you trust agrees to repay the loan if you’re unable to. This could be a family member, a friend or anyone who meets the lender’s criteria.
If your credit score is lower, having a guarantor can improve your chances of getting approved. Just remember, it’s important to understand this type of loan involves risk for both you and your guarantor.
Debt Consolidation Loans
A debt consolidation loan lets you combine all your existing loans into one, making your debt easier to manage. Instead of keeping track of multiple repayments, you’ll only need to make one repayment to one lender. It can also help reduce the amount you repay each month.
Just make sure you’re happy with the length of the loan term. Choosing a longer loan term means paying off your debt for a longer period, which may result in paying more interest overall.
Bad Credit Loans
Bad credit loans are specifically designed to help people with a less-than-perfect credit history get the support they need.
You might find it difficult to get a loan if you have a low credit score. Lenders often see a low score as a sign you might struggle to keep up with repayments. But your credit score is just a snapshot of the past and doesn’t always reflect your current situation.
What Are the Different Types of Home Loans?
It’s important to understand the types of loans involving homes. Each type of loan has unique benefits and can be suited to different needs. Below are some common options:
Homeowner Loans
A homeowner loan, also known as a second-charge mortgage, lets you borrow money by using your home as security. This type of secured loan typically lets you borrow larger amounts compared to a personal loan and can have lower interest rates. They can also be easier to get approved for, even if your credit isn’t perfect.
Home Improvement Loans
Making changes to your property, such as renovating the kitchen or bathroom, can be expensive. A home improvement loan gives you the funds you need to cover those costs, so you can create the home you’ve always dreamed of.
Mortgages
A mortgage is a loan you take out to buy a house or other property. You make monthly repayments for a period usually around 25 years until the loan is paid off. The property itself is used as security for the loan, meaning the lender has the right to sell it if you struggle to keep up with the repayments.
What Are Different Types of Mortgage Loans?
There are many different types of mortgage loans, and they mainly differ in how you repay them. Let’s take a closer look at the two most common options:
Repayment Mortgages
With a repayment mortgage, your monthly repayments go toward both the loan amount and the interest. This means that by the end of your mortgage, you’ll have paid the entire loan off.
Interest-Only Mortgages
An interest-only mortgage works a bit differently. Your regular repayments cover just the interest on the loan, and you repay the amount you borrowed in one lump sum at the end. Usually, you do this using savings or an insurance policy you take out alongside the mortgage.
See if a Loan from Evolution Money Could Work for You
There are lots of loan options out there, but at Evolution Money, we focus on offering secured homeowner loans that are tailored to your needs. You can borrow from £5,000 to £100,000 with flexible repayment terms from 3 to 20 years.
We look at your unique situation, not just your credit score, so if you’ve struggled with traditional lenders, we might be able to help. You can use the funds for almost anything, whether it’s consolidating debt or making home improvements.
Why not check your eligibility today? It only takes a few minutes and, if it looks like we can help, one of our friendly advisors will work with you to find terms that suit you. If you want to explore other financial topics in the meantime, visit our help and advice hub for a wide range of helpful and inspirational articles.
Representative 28.96% APRC (Variable)
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
