Explanation of the various loan options available in the UK
There are a number of different loan options available to you if you are in the UK but they can be complicated so we look at each one in turn and what they mean to someone looking to borrow money via a personal loan, finance or credit.
Unsecured Loan: This type of loan is very simple to explain. An unsecured loan is a loan that is granted to an individual that does not get 'secured' on that individuals assets such as a car or property. In other words, if the loan is not repaid then that individual will not have their car or home repossessed to repay that loan, hence the term, unsecured loan. You can find out more here about the definition of an unsecured loan.
Secured Loan (or second charge loan): Another easy one to explain, this is the direct opposite to an unsecured loan. The loan or finance is granted to the borrower and the loan is then 'secured' against that borrower's assets such as their home (in most cases) or a car (in the case of a logbook loan). So, in a reverse of the way that unsecured loans work, if a borrower does not repay their second charge loan for any reason, then the lender can apply to repossess that persons property in lieu of repayment of the loan. This is quite often why people do not like taking second charge loans out, simply due to the fact that their home could be at risk if they do not keep up repayments on their loan. You can find out more here about the definition of a secured loan.
Guarantor Loan: This is simply another version of an unsecured loan as this loan is not secured against any other asset. The major difference with a guarantor loan is that the applicant (the borrower) can have a degree of bad credit but with the big proviso that they provide a guarantor for the loan, someone who has good credit and is prepared to endorse the loan for the applicant. The beauty of guarantor loans is that they can be used by people with bad credit but also, lenders really like them because the loan will be repaid by the guarantor, if the borrower doesn't repay. This creates a true win-win; A win for the lender and most definitely a win for the borrower with poor credit.
In summary, whichever type of loan you decide to apply for, ensure you follow our golden rules:
Never pay an upfront fee for your loan - no matter what the loan company may tell you.
Only ever deal with a company that is regulated and authorised by the FCA.