There are different types of personal loans which have different conditions and can be used for different things, such as buying a home or consolidating other debts. Understanding your reason for borrowing as well as the finer details can help you find the right loan for you.
Secured loans tend to be larger than unsecured loans and require an asset for security – such as a house. Typically secured loans will offer a lower rate of interest, because the bank has the guarantee of the secured asset. For example, a mortgage is a type of secured loan because the lender is able to sell the property if you’re unable to meet the repayments.
Unsecured loans tend to be for smaller amounts and aren't tied to an asset. They can be helpful if you want to borrow for something like a home renovation or to consolidate debts. You’ll have set repayments which you can make over a set period of time.
Interest rates vary between loans and will depend on other factors like your credit rating. However, an unsecured personal loan will typically offer a lower rate of interest than a credit card or overdraft.
Credit union loans
A credit union is a co-operative where members combine savings to provide each other with credit. To be a member, you need to share a common bond with other members such as living or working in the same area.
Peer-to-peer lending brings borrowers and savers together with rates of interest for both parties. Peer-to-peer websites are not covered by the government backed Financial Services Compensation Scheme (FSCS). The FSCS guarantees deposits up to £85,000 per person, per institution. Joint accounts have protection up to £170,000.
Before taking out any type of loan make sure you’re aware of all the fees and charges that may be associated. Also factor in your potential repayments to your budget to make sure you can afford to make repayments over the course of the loan.