4 September, 2020
There are many different types of loans offered on the financial market. Here I have outlined some of the main types of loans to help you get an understanding of which loan would best suit your individual circumstance.
What is a secured loan?
A secured loan is sometimes referred to as a homeowner loan. It is where your debt (money borrowed) is tied to an asset e.g. your house or car. This means that the creditor can take possession of that asset to cover your debt if you default or do not repay your loan. As the creditor isn’t taking as much of a risk by borrowing you the money, they tend to come with lower interest rates.
Advantages of a secured loan
Disadvantages of a secured loan
What is an unsecured loan?
An unsecured loan allows you to borrow money that isn’t tied to any of your assets. Due to the risk being higher without the security of the loan being linked with a personal asset, interest rates are higher than a secured loan. Instead of the loan being tied to a personal asset, borrowers are offered loans based on their credit history and income.
Advantages of an unsecured loan
Disadvantages of an unsecured loan
What is a Guarantor Loan?
A guarantor loan is similar to a personal loan however, your guarantor promises to repay your loan if you are unable to or stop making the payment. The guarantor can be anyone (usually a close friend or relative) given that they meet the lenders criteria. Guarantors must have good credit, be over 21 and a homeowner.
Advantages of a Guarantor Loan
Disadvantages of a Guarantor Loan
What is a Debt Consolidation Loan?
A debt consolidation loan is a process where one loan is taken out to repay multiple other loans. Multiple debts are combined into one debt with lower overall interest paid and/or lower monthly payments.
Advantages of Debt Consolidation
Disadvantages of Debt Consolidation
What is a short term loan?
A short term loan is pretty self explanatory. They are beneficial for people that need a smaller amount of money for a shorter amount of time (anything from a month upto a year). They are usually used for emergencies or temporary situations.
Advantages of short terms loans
Disadvantages of short term loans
In summary, there are lots of different kinds of loans available to you on the market, some with lower interest but higher risk to you and some with high interest but lower risk to you. The type of loan that you get accepted for will depend on your credit history and your income. The better your credit score and history, the better chances you have of being accepted for the best loans.
Check your loan eligibility today by clicking here.
Editorial Disclaimer: This article was updated 18.10.2021
Opinions expressed here are the author's alone, and not those of any bank, credit card issuer or any other company. This article has not been reviewed, approved or otherwise endorsed by any of these organisations. NB: The information on this page does not constitute financial advice, please do your own research to ensure that the product / service is right for your individual circumstances