When it comes to securing credit, there’s so many different options available. Loans with a guarantor, short term loans, car loans – in the financial industry, there’s so many different forms of credit. But, how do you know which is right for you? How can you be sure that the loan you’re after is the best loan for you?
Simple, you understand the different types of loans! If you understand the options open to you, you’ll be able to make an informed decision.
In this post, we’re here to tell you about a few of the many types of loans, available in the UK. You’ll find out a little bit about them and who/what they’re best suited for. We’ve got all the essential information you need, to plan your next loan – to make sure it’s right for you.
Welcome to the different types of loans – we’re only listing a few, but there’s loads more out there.
5 different types of loan
- Personal loans
Personal loans are relatively broad, because they can encompass many types of loan. From payday loans, guarantor loans and bank or lender loans, these can be used for pretty much anything – as long as it’s legal. Dependent on the amount you need to borrow and your credit score, you’ll need different types of loans. Which we’ll go into detail with, below.
- Payday loans
Payday loans are short term, small amount loans. Typically, you can borrow anywhere from £100 – £1000 over a short period of time. They’re ideal for if you’ve found yourself a little short on cash towards the end of the month, and you need something to hold you over. Whilst they do have high interest APRs, if paid off in full quickly, they’re not overly expensive.
- Guarantor loans
These loans are mid-term loans. Guarantor loans don’t require you to have a good credit score, but instead rely on a guarantor to support your application. They’re usually borrowed over 1-5 years and are for larger amounts of money. Typically, the amounts are between £1,000 and £15,000 – however, it is dependent on the lender. It’s ideal if your credit score is less than perfect and need more loan than a payday loan can offer.
- Bank or lender loans
These are still a type of personal loan, however, they’re usually for those with good credit. The interest rates can be fairly low, reliant on your credit score and are beneficial if your credit is good. Guarantor loans have high APRs than typical loans, and payday loans don’t offer as much finance. It’s great if your credit score is good and you can get a lower rate.
- Student loans
For those heading to university to study, a student loan is the one for you. These are government issued loans, with the sole purpose for those attending university. There are two parts of a student loan.
The first, tuition, covers the costs of your academic course. University fees are no more than £9,000 a year, and your loan covers you for the duration of your study. Whether you’re doing a 3-year course or a 5-year one, tuition fees cover your course’s fees.
Maintenance loans allow for you to, essentially, live at university. These are granted by the government, based on your household income, with different students receiving different amounts. These loans cover living costs, including rent. It allows students to study, without having to live at home or work – although some choose to do so.
Mortgages are solely for buying property. There are many different types of mortgages, but they are all for buying property. It’s a long-term loan, usually 25-30 years although it varies with the type of mortgage you get. It’s a loan that requires a deposit to be put down, in order for you to then borrow the fully amount. It can be anywhere from 5% and up, the deposit, and the more you save the less you have to borrow. Interest rates vary depending on the type of mortgage, but usually follow the bank of England’s base rate – unless they are fixed mortgages.
- Car financing
Instead of buying a car outright, there are ways you can borrow credit to do so. Some loans will be specifically for buying a car or involve leasing or hiring with the option to purchase at the end of the term. It’s become a popular way to borrow, as it allows you to spread car payments monthly, sometimes with 0% interest for a set period of time. If you’re in need of a car, but don’t have the finances to buy one, consider a car loan or car financing.
- Business loans
For business owners, seeking funding, business loans are for business, and can only be spent by the business. What we mean by this, is that the loan is required to be spent within or externally for something to benefit the business. It’s typically for larger amounts of money, anywhere from £2,000 – £25,000 for small business owners (although, it may vary from lender to lender), and is paid back over 1-5 years.
These are just 5 of the different types of loan available. Finding the one that is right for your circumstance is key. Now you know the different types of loans, you’ll be able to start your search for credit.