Personal loans: Everything you need to know

When you start out on your journey to find the right kind of loan for your needs, the marketplace can be baffling. Consumers have so much choice when it comes to borrowing, that many don’t know where to start. 

It’s important not to let the volume of choice put you off. From long-term bank loans to quick payday loans, there is something for everyone who needs to borrow. Let’s take a look at the different types of loan available:

Secured vs unsecured

This is, perhaps, the best place to start when deciding which type of loan to apply for. 

What are secured loans?

Secured loans are those that require some security. This usually takes the form of a property, against which your lender secures the loan. This means that the lender is taking less of a risk when offering you funding as they have the asset to fall back on if you are unable to pay. As a result, a secured consumer loan, often a mortgage, is a serious financial commitment to make, as you stand to lose your home if you default on repayments.

However, because these loans are less risky for lenders, they will often offer them at lower interest rates and to those who might not have the best credit scores. 

What are unsecured loans?

You can take out an unsecured loan without having to put up security. This means that the lender must carry out thorough checks on the borrower to make sure they can afford repayments. These are less risky for borrowers but usually carry lower values and must be repaid over a shorter period of time than secured loans. They also tend to carry higher interest rates. 

Long-term vs short-term

This is the second decision to make, Some loans are repayable over the short term and some over a longer term. Here are the differences:

Long-term loans

Long term loans, when secured, can be repayable over several decades. Mortgages, for example are often taken out over most of the borrower’s working life. Unsecured longer term loans tend to be repayable over a number of years, up to around ten years. 

Short-term loans

These are much shorter in term, ranging from a few weeks to a year or so. Short-term loans are popular as they usually enable borrowers to access money much faster than a long term loan – what’s known as bäst snabblån Sweden – and have a higher approval rate, even for those with a less-than-perfect credit score. This is generally because short-term loans are for lower values and interest charges are high. Therefore, the lender is taking a risk, but also stands to make more money from the deal.

Sources of your loan

Loans can be acquired from several sources. Some of the most popular include:

Bank loans

These tend to be longer term unsecured loans. Values can range from £1,000 to around £20,000, and borrowers usually have to provide evidence of a strong credit history, and a solid income and employment record in order to qualify. It’s also important to compare options – jämför företagslån as they say in Swedish.

Although they are still in demand, bank loans are seen as less popular than they once were as there are so many online alternatives these days. They also often require borrowers to fill in a lot of paperwork and it can take days or weeks for borrowers to receive the cash.

Payday loans

Payday loans are extremely popular at the moment, as increasing numbers of consumers seek quick access to cash repayable over a short period. They often require borrowers to repay the loan on their next payday, which can lead to some people building up unmanageable debt when they are unable to repay, so caution is required. 

These loans often carry relatively high interest rates but are easy to come by and allow you access to cash within the same day, providing you meet the eligibility requirements.

Instalment loans

These are a slightly gentler version of payday loans because they offer consumers the chance to repay over several monthly installments, instead of in one go on their next payday. Many instalment loan providers will still make sure the money is in your account within the day, but you have longer to repay your debt. 

This also means that you might pay more interest overall, simply because you hold the funds for longer before repaying. 

Peer-to-peer loans

This is another type of online loan, usually arranged by a peer-to-peer platform, which matches consumers with lenders. However, these loans differ because the funds often come from a number of individuals who agree, together, through the platform, to fund borrowers. 

Some individuals find that they receive better returns on their investment by lending than they would by simply keeping their money in a savings account, for example. For borrowers, the benefit is a loan at a competitive rate, but eligibility requirements can be very tough. 

Overdrafts

This is another short-term loan option that involves arranging a line of credit with your bank. Your current account provider will offer you an overdraft limit, according to your credit rating and other factors, and you can borrow money up to that amount, paying interest each day on your balance.

There are so many options to research when considering a loan, so it’s important to keep an open mind and only apply once you are confident the loan is right for you and that you qualify.

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