Choosing the Right Loan for You
The two main types of loans available on the market are Secured Loans and Unsecured Loans. A Secured Loan is also known as a Homeowner Loan as they are only available to people who own a property and the loan is usually secured against; so you have to be careful about meeting the repayments. An Unsecured Loan is also known as a Personal Loan and the Lender does not hold any security but trusts that you are going to repay it.
As you can see there is the added risk on the part of the Unsecured Loan for the Lender and in the case of the Borrower it may be the better option. All that said, the Secured Loan generally has a lower interest rate and Lenders are more likely to take a risk on certain Borrowers who may not have a perfect Credit Score as they have some security to fall back on.
When looking for a loan you need to ask yourself certain questions. How much do you want to borrow and for how long? Do you own your house? How good is your Credit History? Can you meet the repayments? Are you thinking of paying the loan back early?
How much do you want to borrow?
Unsecured Loans generally have a minimum limit of ?1,000 and a maximum limit of about ?25,000 depending on the Lender whereas Secured Loans have a minimum limit of ?5,000 and a maximum limit of up to ?250,000; again this all depends on the individual Lenders criteria.
For How Long?
This is also known as the Term of the Loan. Secured Loans generally run from 5 to 25 years and Unsecured Loans generally run from 1 to 10 years; again this all depends on the individual Lenders criteria. One thing to remember is that the longer you have the loan for the more interest you will pay but the monthly repayments will be lower. It?s basically a balancing act on how much you want to borrow and how much you can afford to pay back each month.
An important factor on how much the loan will cost you is the interest rate. A Secured Loan will have a lower interest rate than the Personal Loan. Headline Rates and Typical Rates are terms that the Lenders use to specify what the best rate available is and what the customer is likely to get. The former is only generally available to the customers who have a very good credit score.
With unsecured loans there are fewer things to look at. Interest Rates are always fixed and not variable; and if early repayment charges do apply they are limited to a maximum of two months’ interest. Consequently, the primary concern for anyone applying for an unsecured loan should be the interest rate.
If you don?t own you property then you will have no option but to go for the Personal Loan option.
Applying for the best interest rates, whether secured or unsecured, is pointless if you have a poor credit rating. With lenders tightening their criteria your chances of getting the loan are slim, and having loan applications rejected will only further harm your credit score.