Loans are a common topic of discussion, especially in the home between families looking to buy a new car, clear the credit card bills or to get a mortgage on their property. Students also talk about their loans but most of those are covered until they get a job and earn over a certain amount (oh to be a student again and have no cares or commitments!)
With so many different kinds of loan available to people these days, choosing one can be a difficult process with the application even harder. Just because you make an application through your chosen bank or lender doesn’t mean that you will automatically be approved, you have to tick all of the necessary boxes in order for them to approve your application.
This is all so that they can be sure that you are applying for a loan for the right reasons and so that they know you will be able to make the repayments – they’re not just going to throw money around like they used to before the credit crunch hit. This leads us nicely to the three main kinds of loans available to people, starting with guarantor loans.
These are loans given to people who have a second person on the agreement, ensuring that the repayments will be made one way or another. Lenders like Buddy Loans will discuss the loan fee and the repayment period with their potential customers and one of the requirements will be that there needs to be a second person on the agreement ready to step in in the event that the borrower is unable to make their repayments for whatever reason.
This person is usually a friend or family member who would be willing and able to step in should the borrower prove to be unable to keep up with the repayments and, for that reason, they would then take up the bill so to speak. Homeowners are usually preferred by the lenders in this type of loan because it shows them that they are financially dependable and they don’t have their own issues, such as rent, to pay.
The second main type of loan is a secured loan. It is usually (but not always) held against an asset – something you physically own – such as your home or anything else that is valued at higher than the borrowed amount. They are viewed as being ‘lower risk’ by lenders and, as such, they have a lower interest rate most of the time.
If you take out this kind of loan and you become unable to make the repayments, the lender can sell of part, or all, of your asset (as required) until the debt is repaid.
The third type is an unsecured loan which works in a similar way, only they don’t hold anything against the cost of the loan. This works out in a much better way for the borrower (as opposed to the bank or lender who benefits more from a secured loan), and these are usually taken out over short periods of time. However, there are serious repercussions if these repayments are not kept up to date including potential court dates where you will be required, by law, to make the repayments somehow.