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two main types of loans available on the market are Secured
Loans and Unsecured Loans. A Secured Loan is also known as a
Homeowner Loan as they are only available to people who own
a property and the loan is usually secured against that property,
so you have to be careful about meeting the repayments. An Unsecured
Loan is also known as a Personal Loan and the Lender does not
hold any security but trusts that you are going to repay it.
As you
can see there is the added risk on the part of the Unsecured
Loan for the Lender and in the case of the Borrower it may
be the better option. All that said, the Secured Loan generally
has a lower interest rate and Lenders are more likely to take
a risk on certain Borrowers who may not have a perfect Credit
Score as they have some security to fall back on.
When looking
for a loan you need to ask yourself certain questions. How
much do you want to borrow and for how long? Do you own your
house? How good is your Credit History? Can you meet the repayments?
Are you thinking of paying the loan back early?
How much
do you want to borrow? Unsecured Loans generally have a minimum
limit of £1,000 and a maximum limit of about £25,000
depending on the Lender whereas Secured Loans have a minimum
limit of £5,000 and a maximum limit of up to £250,000;
again this all depends on the individual Lenders criteria.
For How Long? This is also known as the Term of the Loan.
Secured Loans generally run from 5 to 25 years and Unsecured
Loans generally run from 1 to 10 years; again this all depends
on the individual Lenders criteria. One thing to remember
is that the longer you have the loan for the more interest
you will pay but the monthly repayments will be lower. It’s
basically a balancing act on how much you want to borrow and
how much you can afford to pay back each month.
An important
factor on how much the loan will cost you is the interest
rate. A Secured Loan will have a lower interest rate than
the Personal Loan. Headline Rates and Typical Rates are terms
that the Lenders use to specify what the best rate available
is and what the customer is likely to get. The former is only
generally available to the customers who have a very good
credit score.
With unsecured
loans there are fewer things to look at. Interest Rates are
always fixed and not variable; and if early repayment charges
do apply they are limited to a maximum of two months' interest.
Consequently, the primary concern for anyone applying for
an unsecured loan should be the interest rate.
If you
don’t own you property then you will have no option but
to go for the Personal Loan option.
Applying
for the best interest rates, whether secured or unsecured,
is pointless if you have a poor credit rating. With lenders
tightening their criteria your chances of getting the loan
are slim, and having loan applications rejected will only
further harm your credit score.
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