Which Type of Loan Should I Get?On this page we’ve summarised the key facts about most loan types. Generally though when applying for a loan you shouldn’t be guided by the loan type or the even the name of the bank offering it. Instead follow these golden rules to be sure of getting the best possible deal and saving the most money.
Our four top tips for choosing the right loan:
Borrow as little as possible for the shortest time possible. Check and then check again that you’re borrowing the absolute minimum you need. It’s always cheaper to borrow only as much as you need to and no more and to pay back over the shortest time period possible. The shorter you borrow, the less interest you pay.
Calculate what you can afford to pay back each month. Can you afford the monthly repayments for the total duration of the loan? When you compare rates, use a comparison tool that lets you change how long you can borrow for so that you can compare the cost of the monthly repayment to see if you can afford it!
Check that your credit file is spick and span. Make sure that you’ve checked your credit file to ensure that it’s accurate, up to date and error free. For more information read our credit rating guide.
Only apply for loans you know you’re likely to get. All advertised loan and credit card APRs are ‘representative’ – this means only 51% of successful applicants are guaranteed to get the advertised rate. That leaves an awful lot of people rejected or being offered loan rates much higher than they expected. Worse still being declined can damage your credit rating.
What Are the Different Loan Types?
Personal loansPersonal Loans are usually offered by the larger banks. You can use them to borrow between £1,000 to £25,000. They tend to have relatively short terms ranging from 12 months to 7 years. Personal loans are often advertised with low headline rates or APR’s which can make them look very attractive or cheap. However the reality is that they are reserved for people who lenders consider to be low risk or have a near perfect credit rating. Therefore you are unlikely to get one unless you have an excellent credit record. Our advanced credit matching technology shows you the likelihood of you being accepted before you apply without affecting your credit rating so you can apply with confidence.
Homeowner loansHomeowner Loans allow mortgage holders to take out a second charge loan on their property in addition to a mortgage. These loans are secured against your property, meaning that you could lose your home if you don’t keep up repayments. However if used properly they can allow borrowers to access relatively large sums of up to £100,000. Because the loan is secured against your property, you may be accepted for a secured loan even if you’ve been declined for an personal loan or if your credit rating is not perfect. It might be possible to use a Homeowner loan to create lower monthly payments on existing debts to make them more affordable. Homeowner loans run for longer terms of up to 25 years meaning you can spread the cost of your debts which should lower monthly repayment. However be careful, although the monthly payment may be lower, over the lifetime of the debt the total amount you pay back is likely to be higher.
Bad credit loansThere has been a sea change in the loans world in the last few years. Lenders have a completely different attitude to who they will lend to and this has meant that hundreds of thousands of people have been ‘re-priced’ meaning they are now considered to fall into the bad credit category. If this is where you find yourself it’s very likely you’ve done nothing wrong. It’s essential to find a product that is affordable and can help you rebuild your score so that in the long term the cost of your borrowing starts to go down. Our personalised credit comparison tool allows you to compare all kinds of loans see if you are likely to be accepted for them first time. What’s more, it’s 100% free so you don’t need to pay someone for the benefit of comparing loans!
Credit cardsIt’s a little known fact that it can often be much cheaper to borrow on a credit card than take out a loan. In particular if you’re looking to consolidate credit card debts or you want to borrow less than £2000, a credit card can offer beat a loan. Find out if you can borrow for less on a credit card by reading our credit card guide A credit card could be cheaper than a loan if:
You are trying to consolidate existing credit card debts
You want to borrow less than £2000