When you’re looking for the ideal loan provider, it’s first important to consider what type of loan is best suited for you. If you were to approach a lender that specialises in guarantor loans, for instance, but don’t wish to discuss your finances with a friend or family member, you won’t have the best experience.
So what sort of loans are available? And can anyone be considered for them? There are four basic loan categories, which we’ve outlined below. Your eligibility will depend on your financial history, as well as your current situation.
An unsecured loan doesn’t use collateral - you don’t need to secure it against the value of your home, car, or other valuable item. Your eligibility will instead depend on your credit and employment history, and your income and expenditure.
Because the lender won’t be able to collect on any collateral, should the repayments be missed, personal loans are seen as riskier loans for lenders. They have no guarantee that they’ll be able to claim their funds back. The interest rates are therefore higher with an unsecured loan.
Often referred to as a ‘homeowner loan’, a secured loan would be secured against an item of value, usually your home. While the interest rates for secured loans tend to be much lower than for personal loans, you do need to consider the risk involved.
There is more risk for the lender with an unsecured loan, but more risk for the borrower with secured loans. If you are unable to keep to the agreed repayments, there is a chance that your home could be repossessed. The most common example of a secured loan is a mortgage.
A guarantor loan is similar to a personal loan, but also allows those with a poor credit history to submit a loan request if they do so with a guarantor. Your guarantor should have a high credit rating, and will need to cover any missed payments if you’re unable to pay.
A guarantor loan can be a good solution for those with poor credit who are looking to borrow more than a bad credit loan would offer, at a lower interest rate. The main downside is having to find a guarantor - you may not know anyone that is willing to take on this role.
Bad credit loans are aimed at people with a poor credit history. As missed or late payments can stay on your credit report for several years, you may be unable to take out a secured loan, for instance, if you’ve had trouble paying in the past.
To be eligible for a bad credit loan, you don’t need to have a high credit score, you simply need to be in receipt of a regular income, live in the US and have a US bank account, and be aged 18 or over. It’s much easier to qualify for a bad credit loan, but they tend to have higher interest rates and lower borrowing limits.
Overall, depending on the type of loan you’re looking into, you can expect to be offered a wide range of interest rates and borrower limits. The ideal lender will be one who can offer a low interest rate for the amount you need, with your personal financial situation in mind. Finding such a lender may not always be easy - that’s why a lot of people use brokers to compare loans for them.
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