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Loans explained

There are different loans available for individuals and businesses, and these loans also vary depending on the reason you need the loan and your credit situation.

For individuals, there are personal loans and secured loans. For businesses, there are business loans and bridging loans, in addition to longer-term finance such as commercial mortgages.

There are basically two types of loans available to individuals: secured and unsecured. A personal loan, sometimes also referred to as an unsecured loan, allows people to borrow a smaller amount of money – usually up to £25,000 – which is repaid in monthly instalments over a set number of years. This is where you are not obliged to offer any collateral against the money you are borrowing. Instead, your ability to repay will be judged by your circumstances, income, current debts and credit rating among other factors.

You can also find a personal loan where you have a greater chance of being accepted by using a pre-approval loan service. This allows you to enter your details and, without impacting your credit file, see which lenders would be most likely to accept your loan application.

A secured loan allows people to borrow a larger sum of money – sometimes up to £1 million or more – which also must be paid back in monthly instalments. The key difference, however, is that the borrower has to secure an asset of high worth – normally their home – against the loan in order to borrow the money. If you fail to keep up with your secured loan repayments, the lender could repossess your property and sell it to recoup the monies you owe.

Businesses can also obtain loans on a non-secured or secured basis. A non-secured business loan operates by assessing the creditworthiness of the business and its ability to pay the loan back. Businesses in search of a secured loan may put up their commercial property or other assets against the value of their loan. If funds are needed quickly and for a short period of time, then a bridging loan may be an option – read more about five ways to use a bridging loan. A commercial mortgage is more suitable when finance is needed for a longer period of time – read more about the differences between commercial mortgages and bridging loans.

The interest rates for this business lending may vary depending on the sector you operate in, the credit history of your business and the assets you have available to secure your finance.

There are many factors that need to be taken into consideration when choosing the best loan for you. An important decision you need to make is whether to choose a personal loan or a secured loan; this may come down to how much you want to borrow, but it’s also worth keeping in mind the risks associated with a secured loan. In addition to this, you need to consider how long you want to borrow the money for, and will also need to think about your credit score, which could impact whether or not you are approved for a loan as well as the interest rate you are charged. 

Moneyfactscompare.co.uk has selected the following preferred loans brokers:

Secured loans: Loans Warehouse

Regulated bridging loans: Loans Warehouse

Most loan applications are pretty straightforward. You’ll be expected to provide your usual personal details and employment details, including your salary and how long you have worked there. You will also be asked what you plan to spend the loan on, as well as your monthly outgoings and details of any outstanding debts such as credit cards, mortgages, other loans or HPI payments.

It’s important to be honest and open – especially about any existing debts you have. Lenders ask for these details to ensure that you will be able to afford the loan repayments and to prevent you from increasing your debt level beyond your ability to repay what you owe.

For secured loans, you might find that the lender requests proof that you are the owner of the assets that you are securing against the loan. The process for obtaining a secured loan is similar to getting a mortgage, requiring in-depth checks and documentary evidence to support your application. In fact they are a form of regulated mortgage arrangement. You will have two mortgages secured against the property rather than the property secured against two mortgages.

Loan applications can be made in writing (using an application form from the lender) or online – with regards to electronic applications some lenders can give you an instant decision on whether you are loan has been accepted or needs to be looked at further.