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  Category: Articles » Finance » Loans » Article


By Matthew Bourne

The cost of borrowing money in the UK is at its lowest level for some years. Interest rates as set by the Bank of England have stabilised at a low lending rate, enabling consumers to take out loans and credit agreements that are altogether very affordable. In fact, despite personal debt reaching record levels, there is a growing feeling right across the country that people are becoming more comfortable with the level of debt they are carrying.

With loans being made increasingly more accessible via the Internet and specialist loan companies more willing to consider applications from people with a bad credit history, now is the time to borrow money for those house improvements or that new car. But, given the variety of loans available, how do you go about choosing the right type of loan for your needs?

Loan options

What type of loan you choose rather depends on what you want to do with the money. There are loans configured by lenders for a wide range of purposes these days. So whether you want to buy a new kitchen appliance, finance the purchase of a motorcycle or buy a holiday home you can be sure that they'll be a loan designed specifically to fund it.

Regardless of the type of loan you are offered you'll find that all loans are broadly separated into two categories - unsecured loans and secured loans. Unsecured loans provide consumers with the option to borrow money up to a certain limit - typically £25,000 - without formally committing any type of collateral to be used against the loan. A secured loan on the other hand requires collateral to be secured against the sum borrowed, and can be used to borrow anything upwards of £25,000.

Why is collateral required for secured loans?

The definition of a secured loan is that the amount lent is done so on the promise that should the borrower default on payments the lender gains legal control over the collateral on which the loan is secured in order to recover the funds lost. If you wanted to borrow £100,000 for instance then the loans company would require something belonging to the owner that has a minimum resale value of £100,000 to be used as collateral. For most people this would be their home or the equity in their home if the loan is a second mortgage or if the loans are additional to a first mortgage.

Therefore, the only real limit to how much you can borrow on a secured loan is the amount of collateral you can put forward to the lender. In the event that you default on repayments on a secured loan the lender will assume legal title to your collateral and put it up for sale. Lenders of course will only want to reclaim the money owed to them, regardless of the true market value of the collateral. It is for this reason that high value items such as homes and motor vehicles can be found at discounted prices in liquidation auctions.
About the Author
Matthew Bourne has been working in the loans, mortgage and life insurance industry for over 10yrs and is currently working for

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  Some other articles by Matthew Bourne
Loans For Bad Credit
Personal debt in the UK has soared to record levels over the past few years. The Bank of England has recently confirmed that personal debt on a national level now amounts to more than £1,065 billion. ...

Life Insurance Rates
Life insurance at the present time is very affordable. Competition in the life insurance market together with the cost savings that life companies are making by operating on the ...

Used Car Loans
Want to buy a used car but just don't have the funds sat in your bank account? If so, why not consider taking out one of the many used car ...

Unsecured Loans
When looking for a personal loan, borrowers normally have two options to choose from - unsecured personal loans or secured personal loans. Unsecured loans ...

Home Mortgage Loans
Getting rid of the mortgage early is something that many home owners in the UK aspire to achieve. Being free of the principal financial debt in most people's lives at the earliest stage possible offers financial security ...

Discount Life Insurance
Life insurance is a type of insurance policy that provides financial security and peace of mind for you, your family and dependants. It is based on the simple principle that should you die during the term of ...

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