Other Loans

Other Loans Available in the United Kingdom

A loan is an agreement entered into by two parties, a borrower and a lender. It concerns lending of money at an interest rate. It is always evidenced by a promissory note that lists out the principal loan amount that is borrowed, the interest rate is charged by the lender and the tenure of the loan with fixed periodic installments. It may also involve reallocation of the borrower’s assets for a fixed period of time between the borrower and the lender.

There are various types of loans that are available in the United Kingdom. They are broadly classified into two major categories – secured and unsecured.

Secured Loans

In case of a secured loan, the borrower has to pledge some asset in the form of property or a vehicle as collateral.

Mortgage Loan

A mortgage loan is a common type of a secured loan that is used by people to buy properties, mainly.  The lender or the lending institution is provided security in the form of a lien to the property that is involved until the time that the mortgage is settled in full. In case of the borrower defaulting on the loan, the banks or the lenders would have a legal right to repossess the property and sell it to recover the outstanding loan amount.

Logbook Loan

A logbook loan could be taken out as a secured loan against the vehicle’s log book. The tenure of the loan is relatively shorter than in other secured loan cases. A car loan could also be given out by a bank directly to the borrower. An indirect car loan is when a car dealer would act as an intermediary between the bank and the borrower.

Unsecured Loans

Unsecured loan is a monetary loan that cannot be secured against assets of a borrower. Apart from guarantor loans, unsecured loans may be obtained from various financial institutions in different situations which include personal loans credit card debts, bank overdrafts, lines of credit, unsecured corporate bonds and peer to peer lending. The rates of interest that are applicable to these numerous forms of unsecured loans may differ based on the borrower and the lender. They may or not be regulated by the laws of the country but in the United Kingdom, loans would come under the Consumer Credit Act of 1974 when it is applied to individuals.

Guarantor Loans

These loans are easily accessible as unsecured loans subject to the arrangement of a guarantor who can be held responsible in case of non-payment of the loan installments by the borrower. Such types of loans are given to people who have a poor credit score.

Personal Bank Loans

These types of loans are available for amounts ranging from £1,000 to £25,000 for a tenure period of a maximum of eight years. The decision taken on the processing of the loan is a swift one and the borrower may receive the funds within a matter of hours. Fees are not charged for arrangement or set up. There is no penalty for settling the loan amount prior to the closing date of the loan.

Payday Loans

In the United Kingdom, payday loans are generally advanced up to a limit of £500. They have to be repaid over a short tenure or until the next payday. As there are no restrictions on the interest rates that are charged, the typical annual percentage rate for payday loans could go as high as 1000%. Despite such high rates of interest, the payday loan sector in the United Kingdom has grown at a rapid rate. The number of borrowers has gone up four times in just a matter of seven years. The total lending amount today is in excess of a billion pounds. The average loan size is

£270 and more than sixty per cent of borrowers have an annual income below £25,000.

Student Loans

These types of loans have been designed to help all students during their post secondary education to pay for associated fees including tuition, books, living expenses and supplies. These loans differ from other kinds of loans. Interest rates are lower and the repayment schedules may also be deferred while the students are going through their intended education cycle. In the United Kingdom, student loans are provided mainly by the Student Loans Company which is state- owned. Interest on the loan will start accumulating on the principal amount as soon as the student receives the funds or the grant but repayment is deferred until the next tax period after the student completes or abandons his or her education. Loans are made available in the range of £1,000 to £25,000 for a maximum tenure of eight years.