Different types of Loans Exist to meet the Economic demand of the Lender and the Debtor.
Most times, people are not properly guided as to the best choices to make before securing a loan.
This Article points to the different kinds of Loan available.
A logbook loan is a loan that is secured using your car. If you take out a logbook loan and fail to make the repayments then the lender can take possession of (and sell) your car to try and regain their money.
Technically, your car belongs to the lender until you’ve made full payment of the loan. Although you still can make use of the car, once you default the lender decides what to do with your car.
this type of loan is designed for people with poor credit history.
so, be careful when striking out terms and conditions with lenders.
An unsecured loan is not secured against anything you own.
This Loan is Granted in the agreement that you will make some percentage of payment periodically.
Because there is no security for the lender if payments were ever to stop, the risk of a lender losing their money is higher. Therefore lenders will charge a higher interest rate as a way of offsetting the higher level of risk.
Examples of unsecured loans are: a bank overdraft, guarantor loan or a payday loan.
A secured loan is that loan that is secured against a property you own. it can be a house, car or land.
This loan ensures that even when the debtor defaults, the lender has a way of getting back his money.
The majority of secured loans are secured against a property, normally your home/the property that you are currently living in.
Secured Home Owner Loans tend to be cheaper than other types of loans as the lender has the added security of being able to repossess (and sell) the property if for any reason the customer was to stop making payments. The risk to the lender of losing their money is lower, which usually means their interest rates are lower.
If you own a property then it is possible that you may qualify for a secured loan.
A guarantor loan is a type of unsecured loan that involves having someone else ‘vouch’ for your ability to pay it back, and they are often for customers with bad credit.
The borrower will need a third party, usually a friend or family member, who will step in and take responsibility of the loan, should the borrower default.
Anyone being asked to become a guarantor should seek independent legal advice before agreeing to do so.
A payday loan is a high cost unsecured short-term loan designed to tide people over until their next payday.
When you take out a payday loan, you agree to pay back your loan, plus interest, by a specific date. This type of loan is mostly sought out by salary earners.
Payday loans are an extremely expensive form of finance, and should be used in times when cash is required urgently. For example car repairs, health issues etc. Payday loans should not be used to supplement your regular income, and equally should not be used on a regular basis. Payday loans should be used only by those customers who can repay the loan balance on the pre-agreed date.
Interest rates on payday loans are extremely high, as they are usually taken out by people with a poor credit rating who are considered high risk.
Below is a table that explains the type of loans versus its overall rate, the more £ in the table, the higher the overall rate for the loan type.
When you’re desperate for cash, it can be tempting to take whatever loan you’re offered without thinking of the long-term consequences.
But before you sign on the dotted line, it’s essential that you understand the total cost of repaying the debt.
The true cost of borrowing takes into account:
When you have all of this information, you’ll be able to work out the total amount you will have to pay the lender.