It can always be daunting when you speak to any professional in the finance industry to discover what loan is suitable for you. They start talking in ‘their language,’ which results in a puzzled look across your face and a consistent, head-nod now and then. So we’ve pulled together a set of common phrases and words that you will encounter when looking for the right lending solution for your finances.
What is a Secured Loan?
To discover what loan is suitable for you, you first have to understand the two main different types of loans.
This is also known as a ‘homeowner loan’. It’s where a loan is linked to your property. Therefore, you can only apply for this type of loan if you own or are buying a property. Additionally, you can borrow anything from £5,000 or more.
Nonetheless, the amount you can borrow + the duration of the loan + interest rate you’re offered, will all depend on your personal circumstances and the amount of ‘free’ equity in your property.
Value Of Your Home – Amount You Owe On Your Mortgage (if you have one) = Free Equity
- Larger loan amounts
- If your credit score is less-than-perfect, this might be the better decision for you rather than an unsecured loan as your property acts as security.
- Repayment period can be longer
- Fixed monthly payments
- Risk of losing your home, if you don’t keep on top of your repayments.
What is an Unsecured Loan?
This is a more generic loan, which anyone can apply for as long as they have a fair credit score. You do not have to be a homeowner to apply for this form of loan. You can borrow anything from £1000-£50,000.
- Widely available to more people
- Offer flexibility on your repayment timescale. Your average is 1-5 years.
- Some loans allow you to take a ‘payment holiday’ of 2-3 months if required.
- The best loan rates are for borrowers looking to make a repayment over 3-5 years. This means you’ll be paying a higher interest rate but a shorter borrowing term.
- The best deals are only available to those with high credit scores.
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