The different loan types A Simple Guide

Secured Loans (Homeowner Loans)

A secured loan is any loan that requires the borrower to provide the lender with some form of security. In the case of secured loans, the security will be the borrower's property, regardless of whether it is mortgaged or owned outright. Loans secured against property that is already mortgaged are known as second charges, whereas loans secured against a property owned outright with no existing mortgage in place are known as first charges. See below for a quick guide to secured loans.

STEP 1 - WHICH LOAN?

Secured home-owner loans are available in varying amounts and for many different purposes, including debt consolidation. The amount available usually ranges from £3,000 to £50,000, although some lenders will consider lending up to £100,000. The amount borrowed is repaid monthly over a term agreed at the outset, which will usually range between three years and twenty five years. You may be charged a penalty if you repay your loan earlier than agreed, and you should check each lender’s individual policy with regards to this.

Lenders charge interest on the amount you borrow, which is referred to as the Annual Percentage Rate (A.P.R). The amount you can borrow, the term available and the A.P.R will all depend upon the equity you have in your property, the lender's view of your ability to repay the loan and your personal circumstances, for example any adverse credit. Subject to your circumstances, you may be able to borrow up to 125% of the property value. The A.P.Rs quoted by the lender will usually be typical rates, and these act as a guide only as the exact rate offered will be on an individual basis. As a general rule, it is advisable to compare the A.P.Rs of different loans, as this is a good way to determine how competitive they are.

Generally, secured loans are much easier to obtain than unsecured loans. This is because the lender has the added benefit of security, which provides protection in the event of a customer's inability to repay. This also means that persons who are self-employed, have recently changed jobs or who have adverse credit can take out a loan. They are also useful for larger amounts or where the applicant requires a longer repayment period.

STEP 2 - HOW DO I APPLY?

You can apply here then loan companies will contact you on our behalf. All loan quotes on our website are no obligation quotes which means that you will not be obliged to take out a loan.

Lending institutions offer you the option of taking a secured loan via their branch network, over the telephone, via a written application or online through their website.

Initial assessment of your application can be made quickly, however loans under £25,000 are regulated, and a 7 day consideration period will be given to allow time for you to assess the implications of the credit agreement, and to ensure that you are fully aware of all the terms and conditions. When assessing your application the lender will consider your income and financial commitments to determine whether you can afford to take on and repay additional finance.

They will look at your past credit history and take into consideration any adverse credit such as mortgage arrears, defaults or county court judgements. All lenders insist that where an applicant is married, both parties should be named on the application form.

Unsecured Loans (Personal Loans UK)

Unsecured personal loans are offered by lending institutions such as banks and building societies and are so called because the lender requires no security for the debt. They are not available for speculative purposes or business purposes. Depending on the individual lender some other purposes may also be excluded, for example the purchase of timeshare property. Below is a quick and easy guide to UK personal loans.

Choosing the right loan

Personal loans are available for a range of different amounts and repayment terms. Depending on the amount and purpose of the loan, you will be able to choose from a range of repayment periods. Larger loans such as those over £10,000 can usually be taken over longer terms i.e. 7 to 10 years. The minimum loan amount is typically £1,000 although some lenders do offer £500 and upwards. The maximum amount you can lend is £25,000, although this will vary between lenders and products.

Need a loan over £25,000? If you’re a homeowner you can consider a secured loan.

The amount borrowed is subject to an interest charge, and the interest rate applied is known as the Annual Percentage Rate (APR). Generally, it is advisable to compare the APRs of different products as a means of determining how competitive they really are. It is not unusual for lenders to offer different APRs depending on the method of application e.g. applications by telephone may receive a higher APR than those done online, so it’s well worth shopping around for the best deal.

If you are looking for a low cost loan, comparing the APR is a good place to start. Lenders do quote interest rates in different ways, and it's worth familiarising yourself with these before you start:

  • fixed interest rate will stay the same throughout the term of the loan, regardless of any changes in the bank base rate. This means your monthly repayments should always stay the same, allowing you to budget accurately.
  • variable interest rate may rise and fall in line with any changes to the bank base rate. This could result in your monthly repayments changing during the term.

In addition:

  • typical interest rate is an indication of the rate you will be offered as it is the rate that over 66% of successful applicants receive. The exact rate offered to you will be dependent on the loan amount and term and on an assessment of your personal circumstances.
  • set interest rate is offered to all successful applicants, regardless of the risk they present and the loan amount and term.

Although lowest APR is one factor that contributes to a ‘cheap’ loan, you should always pay attention to the small print as any additional costs will be found there. Some lenders do apply an early settlement charge (also known as a redemption penalty) if the debt is repaid in full before the agreed end date. This can be up to 2 months interest so it pays to check this out before you commit. If you think you'll clear the debt before the end of the term then your best bet will probably be a loan with no early settlement costs, even if the APR is slightly higher. Whatever you decide, you’ll need to do your sums before you sign on the dotted line.

Personal loans are repayable on a monthly basis. If there is a degree of flexibility then the lender may permit over-payments and lump-sum payments, both of which allow you to clear the debt over a shorter time period than first agreed. If your loan is a truly flexible product then you may also be able to withdraw funds from the account on a rolling basis, providing you stay within your credit limit. Lenders also offer repayment holidays or payment breaks, allowing you to take a break from your monthly repayments either at the start of the loan (known as 'deferred repayment') or at an agreed point during the term. Interest will continue to accrue on the outstanding balance and this may result in increased monthly payments so your debt is still repaid over the term agreed at the outset.

Getting accepted for a personal loan can sometimes prove difficult if you’ve got bad credit, have changed addresses frequently, have no previous credit history or are self-employed. There are lenders who can help those who need 'bad credit' loans and those who have difficult personal circumstances. The APR is likely to be higher than that offered by a standard personal loan provider, but the chances of getting accepted are far greater.

If you’re a homeowner with ‘bad credit’ or difficult personal circumstances it may be worth considering a secured loan. Click to compare secured loans.

Personal loans are governed by the Consumer Credit Act 1974. The Act contains strict regulations about how money is lent and covers unsecured loans up to £25,000 (these are known as 'regulated loans'). When taking out a personal loan you will be asked to sign a credit agreement, and you'll be bound by it's terms. As extra protection for both yourself and the lender, insurance policies (known as payment protection insurance) are available and these will cover your repayments in the event of sickness, accident or unemployment. In the event of your death your debt could even be repaid in full. Although beneficial, these policies can be costly with both the cover and cost varying between lenders. You should always check what a policy includes and excludes, as this may affect your decision to take it out. Stand-alone policies are available and these may prove better value than the policy offered by your personal loan company.

STEP 2 - HOW DO I APPLY?

You can apply here then loan companies will contact you on our behalf. All loan quotes on our website are non obligation quotes which means that you wont be obliged to take out a loan.

Lending institutions offer you the option of taking a secured loan via their branch network, over the telephone, via a written application or online through their website.

Initial assessment of your application can be made quickly, however loans under £25,000 are regulated, and a 7 day consideration period will be given to allow time for you to assess the implications of the credit agreement, and to ensure that you are fully aware of all the terms and conditions. When assessing your application the lender will consider your income and financial commitments to determine whether you can afford to take on and repay additional finance.

They will look at your past credit history and take into consideration any adverse credit such as mortgage arrears, defaults or county court judgements. All lenders insist that where an applicant is married, both parties should be named on the application form.