Types of Loan

What to consider when choosing a loan

When trying to find the loan type, you first need to know why you need to borrow. This will help you narrow down your search. You might want to buy something expensive, such as a car or holiday, or put a downpayment on a house. Or you might need to cover an emergency bill or just need an extra payment to tie you over until payday. You might even be considering a loan for business or to consolidate other debts – either way, there’s certainly a loan out there for you.

So, what do you need to consider? Firstly, consider your credit score. Do you have good or bad credit? Will this affect your loan interest rates? Plus, the ever-so question: Can you pay the loan off in a manageable timeframe?

What are the different types of loans?

• Personal Loans (Unsecured)
• Secured Loans
• Payday Loans
• Student Loans
• Bad Credit Loans
• Credit Builder Loans
• Mortgage Loans
• Auto Loans
• Home Equity Loans
• Business Loans
• Debt Consolidation Loans
• Instalment Loans
• Emergency Loans
• Guarantor Loans

We’ll explain each of these in more detail below, helping you find the right loan type for your situation.

1. Personal Loans

Also known as unsecured loans, these types of loans allow you to borrow usually smaller amounts, from £50 to £5,000 and can be used for anything personal. From buying a holiday to even something smaller, such as buying those concert tickets you wanted. Personal loans are usually used to spread the cost of a larger purchase, but ultimately, the use is up to you.

These loans are unsecured, so you won’t have to use an assent as collateral, such as your house or car. This means it’s less risky for you, but your credit rating determines how much the interest rate is.

Learn more about small personal loans.

2. Secured Loans

This type of loan is similar to personal unsecured loans; you can use it for whatever you see fit, and it’s usually for smaller amounts. However, these require collateral like your house or car. If you can’t pay back the loan, the lender can take away your collateral in return. Because of the lower risk for the lender, these loans have lower interest rates than unsecured loans, and you might be able to get higher amounts.

3. Payday Loans

Usually, for small amounts of money, short-term loans are high-interest loans intended to be taken out and repaid within the next payday, hence the name payday loans. They are often for people in need of quick cash to tie them over before payday. Depending on the lender, you can borrow more and repay within 3 months instead. Shop around to get the best deal for you.

Learn more about payday loans.

4. Student Loans

Student loans can help pay for college, university, and the cost of living while away from home. There are two types of student loans: government student finance and private student loans.

Student finance is tuition and maintenance loans you can apply for via the UK Government. They don’t take into account your credit score and only have to be repaid once you earn over the threshold.

Student personal loans usually require a credit check and may come with higher interest rates because of the high risk involved. These loans can be used for living essentials or towards university tuition, and they must be repaid within the agreed time frame with the lender.

 5. Bad Credit Loans

Loans for bad credit are designed for those with no credit history or a poor credit score. This is because if you do have a low score, you might find that your options for getting a loan are limited and the ones you do find come with higher interest rates. But there are lenders out there who understand that everyone’s financial situation is unique and take into more than just your credit score when lending.

Find out more about loans for bad credit.

6. Credit Builder Loans

Great for those with poor credit or no credit file, these help you improve your credit score. Some lenders that offer this type of loan will put the amount into a savings account. You then make fixed monthly payments over time to repay it. When repaid, you can get the money back.

Related: How To Improve Your Credit Score

7. Mortgage Loans

Mortgages cover the price of a home that you are buying minus any down payment you put down. This type of loan is a secured loan where the house acts as collateral. If mortgage payments are missed, you could lose your house in return.

Taking out a mortgage is essentially paying monthly to pay off the house you bought, which can take up to 30 years. While the interest rates can either be fixed or varied by the lender, once you finish repaying it, the house is yours, and you no longer have to pay for it.

8. Auto Loans

Also known as car loans, there are a few different types of this loan. Whether you’re buying a new or used car, when you purchase a car, auto loans allow you to borrow the price of that car minus any down payment. These loans are also secured, so the car can be repossessed if you fail to pay.

Other types of auto loans include:

• Refinance auto loan – allows you to replace your current auto loan with a new one to get a lower interest rate or reduce payments.
• Logbook loans – a type of secured loan which allows you to borrow money against your car where the lender will use your logbook as collateral.

9. Home Equity Loans

Home equity loans or a home equity line of credit, lets you borrow a percentage against the equity you’ve built in your home. Sometimes called a second mortgage, these loans usually have a fixed rate and are repaid over a set period. If you take out a line of credit, you can borrow up to a certain amount and repay it over time to use it again.

10. Business Loans

This type of loan can be used for various business needs, such as startups, expansions, purchasing equipment, or any other expenses. They offer a variety of financial products, including small business loans, startup loans, fixed-term loans with interest, revolving business lines of credit, and merchant cash advances.

11. Debt Consolidation Loans

This involves taking out a loan to pay off debt, whether it’s credit card debt or debt from another loan. Debt consolidation loans let you manage your debt and can be used to pay off all other existing loans so that you only pay one loan back rather than multiple. This can be a good strategy to save on interest and save how much you pay monthly.

You want to get a better deal, so just ensure you’re happy with the interest rate and repayment period.

12. Instalment Loans

An instalment loan is a loan split into scheduled payments over an agreed period. These types of loans cover short-term loans, car finance, insurance, mortgages, student loans, and more. Most loans can be paid in instalments, as this is an easy way to manage repayments.

Learn more about instalment loans.

13. Emergency Loans

This type of loan can also be called an urgent loan or crisis loan and is ideal for any unexpected emergency that comes your way. Whether it’s a bill that’s come up, your car needs fixing, you need a new boiler, or even you’ve eaten into your savings. Whatever the emergency, these loans are made for short-term borrowing and can help you get back on track.

Types of emergency loans include:

• Home appliances
• Plumbing
• Boiler repair
• Private healthcare
• Dentistry
• Car repair and battery
• Unexpected energy bills
• Phone bill
• Pet bills

View more of our loans for life’s emergencies.

14. Guarantor Loans

This type of loan requires you to have someone who promises to repay the loan if you can’t, also called a guarantor. Usually, a relative or friend is great if you have a low credit score, as having a guarantor can improve your chances of getting a loan. But these loans can carry risk for both you and the guarantor, so no guarantor loans are available if needed.

Finding The Right Type Of Loan For You

Taking out a loan is a big decision and should be carefully thought over, especially if it’s large. You need to make sure it’s the right choice and that you can afford the repayments and interest. Making payments in full and on time can help increase your credit score, but if you miss any, you’ll not only have late fees but also harm your credit score.

With Sunny, you can compare all the different types of loans and see your eligibility for one. Apply online, select your amount from £50 to £5,000, and the repayment period from 3 to 36 months. We can then do a soft credit check that tells you if you’ll likely get accepted or not. You can continue the application if you are eligible. If approved, you can get your money as soon as the same day. It’s that easy.