Many people needing to lend money simply jump at the first loan option they see. Unfortunately, they do not take the time to do a little research to find the best loan option for them. Sometimes, this can get them further into financial trouble, especially if the loan they end up taking out is not suited for them.
And there are so many options available, it is easy to get completely bewildered, even if you have done a little bit of research. That’s why websites like ours exist – to try and help you make the best-informed decision you can when searching for the right credit product for your unique circumstance. Also, it is important to bear in mind that many lenders simply do not care about borrowers. These unscrupulous people are only interested in the money their loan products will bring in.
Perhaps the best place to start when deciding on the best loan option is to decide between the two major loan types available. These take the form of secured and unsecured loans. In this blog, we will look at both in detail, highlighting differences between the two.
What is a secured loan?
Many financial institutions in the United Kingdom offer secured loans as a lending option to the public. When applying for this type of loan, a lender must have some form of collateral to offer as security on the loan. This could be something like your house, your vehicle or an expensive piece of jewellery. The value of the security that you offer certainly plays a major part in how much money you can borrow along with your monthly income, expenses and any other debt you might have against your name.
The collateral is a crucial part of the loan. If a borrower doesn’t pay their instalments the lender may sell off the security to recoup any costs they may have suffered. That’s why it is important to always pay your instalments on time and with the full amount.
Note that secured loans are usually for fairly big amounts based on the collateral offered. Also, interest rates can be fixed or variable while the loan is often paid back over a number of years but usually no longer than five years.
Unsecured loans are very different to secured loans in the fact that a lender needs no form of collateral to apply for one. They are generally also for far smaller amounts with a fixed interest rate and repayment term. This means that from the first month to the last month in which you make your final payment, the amount will not change at all. If you signed a contract that says you will pay 100 pounds a month, that is what you will pay for the duration of the loan. If it changes, make sure you contact your loan provider as even if the prime lending rate changes, your loan instalment should not.
These loans are often taken out when people need cash fast, for example in emergencies. You may need an urgent medical procedure or perhaps a wall collapses in your home that needs to be fixed. This is where unsecured loans come into their own mainly in the fact that approval is fast – usually within 24 hours. Bear in mind however, APR interest rates for these loans are very high. This is mainly due to the fact that the lender has no collateral to fall back on should someone default on their payments.
Do your homework and stay up to date with loan news
If you are looking for a loan it is important that you do not jump at the first option you find. It understandable that in times of need, you might just rush into taking the first loan you see. Take your time, compare options and above all, read the fine print as well as the terms and conditions.
Often, the amount of money you need will go a long way to determining the type of loan you should be aiming for. Some loans however, are perfect across a range of amounts, for example, a logbook loan can secure anything from 500 to 50 000 pounds depending on the condition of your vehicle.
Be prepared and you won’t be caught out.