There have never been a larger number of types of loans available. From car loans, to property loans, business loans and short term loans – the options really are endless.
Because of the creation and prevalence of the internet, the way in which we apply for and take out loans has changed entirely. Although it’s still entirely possible to go into offices and banks to take loans out if this is what you’re comfortable with, it’s now far more accessible to either go online or sort out loans over the phone.
The problem is, with the development of different types of loan, it can be incredibly difficult to know which is best for you. Of course, it typically depends on your financial situation and what the loan is actually for, but even then, it can be a little confusing.
Today, we’re going to be taking a look at the ins and outs of various loans, the reasons behind seeking them, and will hopefully help you to decipher which type of loan is right for you.
Why Might I Need to Take Out a Loan?
There are such a wide variety of loans available, that it’s first important to know exactly why you want or need to take the loan out in the first place. For example, the loan you need to pay for a car isn’t the same as one you’d take out in order to make home repairs.
Here are just a few of the typical reasons why one might apply and take out a loan:
- Buying a home – which is typically referred to as a mortgage.
- As aforementioned, to buy a car.
- Again, in order to make home repairs or renovations.
- Small business loans and grants in order to launch a start up.
- To pay for a holiday.
- To pay off debts.
- Any other sort of large purchase.
So as you can see, the spectrum of borrowing is fairly varied.
What are the Different Types of Loan?
Although there are a wide variety of different loans you can take out – from your mortgage to financing a car – they all tend to fall under two specific categories.
The first of these are Unsecured Loans. If a loan is unsecured, it typically means that you don’t have to provide the lender with a form of security – which tends to be an asset of sorts, say your car, for example. With this type of loan, you very simply borrow the cash and pay it back at a fixed rate over an agreed number of months usually.
The second is a Secured Loan – which as you can probably guess, means you have to provide the lender with security in the form of an asset like your car or home. The risky thing about secured loans, is that if you fail to pay them then the lender or bank has the right to repossess the asset you provided them with – which ultimately means you could result in losing your home in a worst case scenario. This is why, generally speaking, unsecured loans are safer and more agreeable.
Can We Narrow It Down Even Further?
So, we’ve established the two main category of loan – secured and unsecured. But which loans fall into which bracket? Well, we’re going to provide you with a general list of what kind of loan each would typically be:
- Certain types of loans for debt.
- Small business/generic business loans.
- Social loans – also referred to as peer to peer loans.
- Personal loans.
- Loans if you have bad credit.
- Guarantor loans.
- Mortgages and home loans.
- Finance on cars and other motor vehicles.
- Bridging loans.
- Logbook loans.
As you can see, unsecured loans are typically more common and are likely to be used for a wider variety of generalised loans, whereas secured loans are more specific.
To round things off, we’re just going to take a little look at some of the other things you should consider when taking out a loan.
The most obvious of these, and the one we’re going to cover, is your credit rating. It’s no secret that if you have a negative credit score, you could run into trouble when trying to secure a loan. Guarantor loans and debt consolidation loans are usually the ones most likely to be available to someone who has bad credit.
Basically, the better your financial record, the more choice you’re going to have when it comes to loans. With bad credit comes limitations, but it’s not impossible. Just be sure to do your thorough research before taking any sort of action.