Personal loans differ from secured loans in that they are issued on the basis of merits.
With a secured loan, security (aka collateral) must be provided by the applicant as ‘insurance’ for the lender against the funds issued. If the money is not repaid in full and on time, the lender has the legal right to repossess and sell the borrower’s assets, in order to recoup their losses.
Meanwhile, personal loan agreements are based more on trust than assets. The applicant does not need to provide any form of security, eliminating the potential risk of repossession. Instead, the credit status, income level and general financial position will be used to assess their eligibility and trustworthiness.
Even so, a personal loan can still result in the forfeiture of assets if the borrower defaults on their loan.
But what are the different types of personal loans available, and what can they be used for? If you are looking to borrow money without putting any specific assets on the line, which is the best personal loan type for your requirements?
Standard Unsecured Personal Loans
Most banks and lenders will offer standard unsecured personal loans, on something of a no-questions-asked-basis. Or to put it another way, you will not need to specify exactly what you intend to use the money for, and the facility is fairly simple to arrange. Your credit rating and income level will determine how much you can borrow, and will also influence the rate of interest on your loan.
Home Improvement Loan
This is a specialist type of unsecured personal loan, issued exclusively for home improvement or modifications. Home improvement loans are typically issued exclusively to homeowners, but the applicant’s property is not used as direct security for the loan. Homeowners can often gain access to more competitive personal loans than those who do not own their own homes.
Debt Consolidation Loan
A debt consolidation loan can be issued in almost any size, as the whole point of the facility is to save the borrower money. Lenders issue consolidation loans to enable debtors to combine multiple outgoings into one larger loan, with a single (and more affordable) APR. However, some types of consolidation loans are recorded negatively on the borrower’s credit report, and should therefore be approached with caution.
Likewise, payday loans should be approached with extreme caution as they can quickly become disproportionately expensive. These short-term, high-interest personal loans should only be taken out where very prompt repayment is possible. With APRs often exceeding 1,000%, a payday loan can be a risky facility at the best of times.
Car finance can also be taken out as a type of personal loan, as there is usually no requirement to provide collateral for the loan. Instead, the vehicle you intend to buy is used as the insurance policy for the loan – not the assets you currently own. This is therefore a form of credit that blurs the line between secured and unsecured borrowing, as while you do not need any on-hand assets to qualify, you run the risk of your car being repossessed if you do not keep up with your repayments.
Craig Upton supports UK businesses by increasing sales growth using various revenue streams online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to increase traffic. Craig is also the CEO of iCONQUER, a UK based SEO Firm and has been working in the digital marketing arena for over a decade. A trusted SEO consultant and trainer, Craig has worked with British brands such as FT.com, DJKit, UK Property Finance, Serimax and also supported UK doctors, solicitors, builders, jewellers, to mention a few, gain more exposure online. Craig has gained a wealth of knowledge within the digital marketing space and is committed to creating new opportunities working with UK companies.