Choosing the right type of loan
There are lots of different loans. What they’re for, and why you may get one over another, can be a bit confusing. That’s why we’ve broken down every type of loan you’ll find on TotallyMoney, so you know what your options are.
Personal loans let you borrow between £1,000 to £25,000, and usually have relatively short terms ranging from 12 months to 7 years.
They’re often advertised with low headline rates that can make them look very attractive or cheap. Low rates tend to be for people with good credit ratings. So, bear in mind you could be offered a higher rate if your credit score could be better.
Homeowner loans let mortgage holders take out a second loan on their property, on top of a mortgage.
These loans are secured against your property, and are sometimes called "secured loans”. That means you could lose your home if you don’t keep up repayments.
But, if accepted, you could get 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 a personal loan — or if you have a lower credit rating.
You can use a homeowner loan to create lower monthly payments on existing debts, as they run for longer terms of up to 25 years. That means, you can spread the same debt over a longer period, which should lower your monthly repayments.
Be careful, as although the monthly payment may be lower, the total amount you pay back is likely to be higher.
There are different products to help you buy a car. You may be eligible for personal loans for an amount big enough to make a car purchase.
There are also “Hire Purchase” options. These are secured against the car itself, so if you don’t keep to your monthly payments, the car could be taken away. This also means that the car isn’t yours outright until you make your final payment.
Or, there’s the “Personal Contract Purchase” option. The monthly payments are usually cheaper for this as the contract takes the decreasing value of the car overtime into account. But again, you don’t own the car until all the payments are made.
Bad Credit Loans
If you have a low credit rating, you may still see a few loans options. But, these are likely to be at higher rates. That means, you could end up paying a lot more back than you initially borrowed.
If you’re worried about the cost of your debt, bad credit loans aren’t the only option — you could be eligible for a guarantor loan.
It’s a loan where someone — a guarantor — agrees to cover you if you can’t make a payment. They’re there for those who find it harder to get personal loans, as having a guarantor gives lenders more confidence they’re likely to get their money back.
Lenders will do a ‘soft search’ on you and your guarantor to decide whether to accept you or not. Don’t worry, this search won’t harm your credit rating. And, you’ll both need to show you have a regular income — just as a way to make lenders confident they’ll get the money back
Your guarantor should ideally be someone you trust, like a relative or close friend — but normally a spouse or partner isn’t allowed. They usually have to be under 75 years old, too. And, if they can’t make the payment, they may face legal action. It’ll also appear on their credit file and could harm their credit score — so make sure your guarantor is aware.
It’s usually much cheaper to borrow on a credit card than take out a loan, if you’re looking to consolidate credit card debts, or you want to borrow less than £2000.
Payday loans are often not the best option. They have very high interest rates, which means staying on top of your payments can be hard. That means, the amount you have to pay back is often far higher than the amount you borrowed.
That’s why TotallyMoney has a credit card checking tool, to help find the best card for you. It shows you your likelihood of acceptance before you apply.
A rejection can make it harder to be accepted for credit in the future. So, when one lender says no, they often all do. TotallyMoney lets you know if you’ll be accepted — with no harm to your credit rating.