TYPES OF LOAN

For general information on loans and what might be the best option for you, click here, or view the definitions and links below.

Personal Loans

These are suited to borrowing large sums over a long period of time, you borrow a fixed amount and repay it in instalments over a period of time (this is known as a term). This type of loan comes in two forms:

• Secured Loans– meaning that the value of the loan can be secured against an asset (for example your car or house) – this means that if you cannot repay the loan the lender may sell your asset to recover the value of the loan.
  
• Unsecured Loan– this type of loan does not require your home or car as a guarantee for the loan, the interest may be slightly higher and the lender can take court action against you to get it money back, but you do not have to put your home at risk.

Make sure that that you check for early repayment penalties, and any late payment charges as both can be very high. Many lenders will not give you a loan unless you have a bank account from which you can make your monthly payments by direct debit.

Second Charge Loans

It is possible to have more than one mortgage on a property. The mortgage company who has the first mortgage on a property holds the first “charge” as their security for a loan. A second charge lender will rank behind a first mortgage lender who holds the first legal charge, meaning that the first charge holder will be the first to be repaid following the disposal of the property, followed by the second charge holder, and so on.

A second charge loan can allow further equity to be released from a property. The cost of a second charge loan reflects the increased perceived risk associated with ranking behind the first charge holder. Typically, second charge loans allow for monies to be raised up to a maximum of 75% of current market value of the property.

For more information on Second Charge loans follow this link.

Credit Union Loan

A Credit Union is a mutual financial organisation, owned and run by its members, for further information on Credit Unions, click here. A Credit Union may offer you a loan if you have a good credit history and are a member of the union.

CDFIs

If you’re looking for finance and have been turned down for a bank loan, Community Development Finance Institutions (CDFIs) might be an option.

CDFIs are small, independent organisations set up to support communities by providing affordable finance that would otherwise not be available. Many CDFIs are run with funding from the Government and charitable trusts, alongside other funding sources.

CDFIs lend money to businesses, social enterprises and individuals in deprived communities who struggle to get finance from ‘mainstream lenders',  such as banks, building societies and loan companies, by offering loans and support at an affordable rate.

CDFIs are seen as a reputable source of finance with some of the larger ones being regulated by the Financial Services Authority. All must comply with the sector's trade association, (CDFA), code of practice.

To find out more about CDFIs and to find the nearest one to your business go to the association website by following this link.

Hire Purchase (HP) 

HP is a way to pay for expensive items by hiring them and paying regular instalments, which eventually add up to the price of the object. This allows you to spread payments over an agreed term with your lender. For more information, follow this link.

Last Resort Borrowing

There are a number of other ways to raise money if you do not want to borrow from a bank or building society, known collectively as Last Resort Borrowing, but they are all extremely expensive compared to other forms of borrowing and should only be used as an absolute last resort.

These include:

•     Payday Loans
•     Log Book Loans
•     Pawn Brokers
•     Door Step Borrowing

New rules govening Pay Day Loans introduced by the FCA to govern interest rates came into force in May 2017. For more details follow this link.

However, be cautious about illegal moneylenders – see bottom of page.

Follow this link to find out more about other forms of borrowing and what to be aware of.

More information on Payday loans can be found at citizensadvice and at StepChange.org.

For further information on loans follow this link. This page includes details to check such as the length of the loan agreement and basic APR concerns.

To help you work out how long it will take to pay off a loan and how much you’ll need to repay each month follow this link to access a loan calculator.

A calculator specifically for payday loans is available at stepchange.org.

A Guide, "Quick Access to Cash" with options and associated risks, is available from MoneyHelper. 

Illegal Money Lenders, or Loan sharks are unlicensed moneylenders who charge very high interest rates and sometimes use threats and violence to frighten people who can’t pay back their loan.

Comprehensive information on dealing with loan sharks can be found at MyAdviceGateway - Loan Sharks.