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Finance in Berkshire
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Types of Loans
Types of Loans
I’ve called this article “types of loans” as I want to focus on what I consider to be the three most common loan options- Unsecured, Secured and Consolidation.


Unsecured Loan
Definition - “A loan granted based only on the borrower's promise to repay.” Despite the title, this is the most common and safest type of loan available.

People who apply for these loans usually have the income to meet the re-payments and may use the loan to help cover the cost of DIY or a car.
The lender will assess the income levels of the applicant and will only approve the loan once they are satisfied that re-payments can be met.

Secured Loan
Definition- “A loan in which a borrower pledges an asset such as a home or car that may be sold if the borrower is unable to repay the loan.”

These loans are often seen advertised on the backs of magazines or in newspapers. They invite you to borrow absurdly large figures (£100,000) over an unusually long period of time (e.g. 360 months) and will use your house as security if the payments lapse. You usually don’t have to worry about your credit-scoring as much with these loans. In fact one website (Moneysavingexpert.com) ran a petition to stop Carol Vorderman advertising them!

Consolidation Loans
Definition- “The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period, also called debt consolidation.”

These are also commonly advertised and promise to clear your debts. Again, these loans are easier to obtain and are usually the last resort for people. Taking out a large loan to clear other loans makes no sense to me. If you can’t afford a loan, then don’t take one out! Sometimes unforeseen circumstances prevent us from making our loan re-payments so it’s best to ensure that we consider our options carefully first.

Fiona Seymour-Jesse
SJ Copy



PS: Don’t forget that all links from this article can be accessed from the Links page in the Finance section!


Useful Links
Investorwords- for the definitions
http://www.investorwords.com/

Borrowing and in Debt
http://news.bbc.co.uk/1/hi/in_depth/business/borrowing_debt/default.stm

Articles
Why consolidation loans aren’t always the answer
http://www.fool.co.uk/news/comment/2006/c060328d.htm


Secured Loans
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1094036763,33661,

The finance pages of Business in Berkshire are for general guidance only and advice should always be sought before acting on any of the suggestions made


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In this section:
Business Loans
Types of Loans
Loans- Payment Protection Insurance
Loans - Do You Really Need One?

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