Different Types of Loans
Different Types of Loans
Loans are a way to raise money you need today – but won’t necessarily have until a later date. Used wisely, loans can be a good way of spreading out the cost of an expensive purchase, making it affordable.
There are two main categories of loans: secured loans and unsecured loans.
Secured loans are loans which are secured against something of high value. For example, a mortgage is one kind of secured loan – the borrower will use their house as ‘security’ which the creditor could, if necessary, force the sale of if they failed to repay the mortgage as agreed. Mortgages aren’t the only form of secured loan, though – a homeowner may be able to secure a further loan against their property if they have enough equity (basically, if their home is worth significantly more than any mortgage / loan they already have secured against it).
Unsecured loans typically come with a higher interest rate than secured loans, as they represent more of a risk to the lender. However, they’re available to people who aren’t willing or able to secure a loan against their property, or who simply aren’t homeowners.
Any loan is a type of credit, and therefore must be repaid. Repayments will usually be made on a monthly basis and will be based on how much an individual borrows, the length of time over which the loan will be repaid and the interest rate on the loan.
You may find this loan calculator useful to work out your loan repayments.
Repayments – how budgeting can help
When taking out a loan, an individual has to be sure they will be able to meet the repayments. However, anyone’s circumstances can change, and this may mean they can no longer afford their monthly repayments.
If this does happen, they may be able to ‘find’ the money they need to cover their monthly repayments – by improving their budgeting skills.
Budgeting is all about understanding your finances, so you can make the best use of your money. It means tracking where your money comes from and where it goes, so you can see where you may be able to make cutbacks to ‘free up’ money which you’d normally spend on things you don’t really need.
If, after you’ve drawn up your budget, you find you can’t ‘free up’ enough money to meet your loan repayments, you should take immediate action. You may find a professional debt adviser can help you find a solution to your problem. They should also be able to help you draw up a budget, so you can make sure you’re really tracking your finances accurately.
Different Types of Loans
