Created by: Dave Harland | 3 December 2019

The different types of loans available

There are two main types of loans – unsecured and secured. Here’s the lowdown on both.

Unsecured loans are when you borrow money from the lender and agree to pay it back over a set period. With this type of loan, your belongings aren’t used as part of the application.

Secured loans are when you borrow money from the lender and agree to pay it back over a set period but your belongings such as a property or vehicle are used as security if you cannot pay your loan back.

Unsecured loans

The funds from unsecured loans can be used for anything you like. Common types of unsecured loans include:

  • Personal loans
  • Social loans
  • Peer to peer loans
  • Bad credit loans
  • Guarantor loans
  • Some debt consolidation loans

Secured loans

Secured loans often have restrictions on what you can use the money on. For example, bridging loans usually must be used to buy property. The common types include:

  • Homeowner loans
  • Logbook loans
  • Bridging loans 
  • Vehicle finance
  • Some debt consolidation loans

Other loans

The options are endless but some of the most common loans are bank, payday, doorstep, and online.

  • Bank loan – These are long-term loans which take into consideration your income and credit rating. Loans from banks often have better interest rates compared to short-term borrowing but it’s important to be aware of any late or missed payment fees.
  • Payday loan – These can be a very expensive way of borrowing money. These loans aren’t secured against your belongings and are designed for those looking to borrow a small amount of money over a short time. Payday loans often come with high interest rates and if you can’t afford to pay back the repayments, the costs can spiral out of control.
  • Doorstep loan – Doorstep loans are short-term loans which aren’t secured against your belongings. You don’t need to give your bank details and usually lenders will deliver cash to you and you have to pay your loan by cash. This means that even if you have a short or poor credit history, you could be accepted.
  • Online loans – Although online loans are similar to payday loans, they allow you to pay your loan off in multiple repayments compared with the standard way of making one payment each month.
  • Credit Union loans – These are unsecured, short-term loans that are usually only offered to those who are members of the union. With lower interest rates and various repayment schedules available, they can be a cost-effective way to borrow. But you usually need to have savings with a Credit Union, so it’s not ideal if you need money in an emergency.

Remember to do your research before choosing a loan and if you’re considering a loan because you’re struggling for money, the National Debtline offers free advice.
 

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