Guide to different types of Loans in the UK

Let’s first see what Loans are all about. Well, the term ‘Loan’ majorly defines the lending of financial attributes of one person/lender to the other person/borrower who later pays off his loan with principal amount and specified rates of interest within a specific amount of time. Both the lender and the borrower follow some rules which are incorporated in a document called the ‘agreement’ or ‘contract’.

There are specific types of loans provided by banks which differ from place to place.

The UK provides both ‘secured’ and ‘unsecured’ loans to people.

  • Secured loans:

The types of loan where you pledge your assets (as security) until you pay off the entire loan. If not, the bank has the whole right to sell your asset to recover the amount.

  • Unsecured loans:

The types of loans where the borrower need not keep any of his assets as security. Financial institutions provide this kind of loans. Some are-

  • Bank overdraft

  • Lines of credit

  • Credit card debts

  • Guarantor loans

  • Personal Loans

  • Peer-to-Peer lending

  • Corporate bonds (might be unsecured or secured)

The UK follows norms which fall under the Consumer Credit Act 1974 while providing a loan.

Rates of interest:

Interest payable on unsecured loans is always basically higher than the secured loans since for the lenders it’s a limited recourse against the borrowers in due course of time.

It’s also a great risk for the lenders if the rate of interest is very high because unsecured lenders might not recollect the debt with that much high amount of interest. Plus, they do not have any guarantee as the borrower’s assets are not kept as security. So, the secured lenders have much more priority to the unsecured ones.

Approval of loans

  1. This highly depends on the credit score and the income of an individual. These are mainly required for personal loans which are used to fulfil daily activities.

  2. If you are a fresher being a borrower from the bank, you will face troubles since the bank doesn’t have any idea about your financial records. Most banks won’t take a risk. Also, if you have a bad credit score, it’s quite tough to get you loan approved.

  3. There are ways to get your loans approved, which include Guarantor loans. Here, you select a guarantor for your loan who has a very good credit score as your co-signer and get your loans approved. Moreover, your credit score gets improved aligning your guarantor’s credit score.

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