Which type of loan suits your current situation?By Angelica Malin
In this current economic climate, with so many of us being made redundant due to the COVID-19 pandemic and a recession just kicking into gear, borrowing could be set to increase in the near future. But there are so many types of loan out there and it can be intimidating to pick through the information to decide which one is most suitable for your individual needs and situation. That’s why we’ve put together this handy guide that should give you a good idea about which loan is right for you.
If you’ve been hit with a small, unexpected expense that you currently don’t have the funds to cover, then a short-term loan could be the most practical and cost-effective option. These are smaller chunks of money (often under £1000) that can be deposited into your bank account instantly and are paid back in regular instalments within a year plus interest. Short-term loans are ideal for maintenance bills and repairs or other unplanned expenses like medical bills. Short-term loans are generally unsecured, so there’s less risk involved but you might need a decent credit rating to get one.
As the name suggests, payday loans are designed to keep you afloat until your next payday and, as such, they usually require you to pay back your loan in one bulk payment with interest. They have developed a bad reputation in recent years thanks to unscrupulous lenders such as Wonga charging obscene APR on their loans, but they can still be a valid option for those that know they have a big payday coming but need the cash right now.
Long-term loans usually offer a larger sum of money and are spread out over a period that’s usually over a year. These are typically undertaken to help with more substantial costs, such as weddings, holidays or major household improvements (new kitchens or bathrooms, for example). Of course, there is a higher risk involved for the lender, so they might ask for some kind of collateral as security (making them a secured loan, as it’s secured against your assets). The APR on long-terms loans is often lower which may make repayments more manageable, although you may end up paying more in interest overall.
Choosing the right loan is a case of doing your research, going through different lenders and exploring their offers. What you want to look for is the term, the amount, the interest rate and the APR and compare them with each other until you find the best deal.
Either way, taking out a loan has never been easier, which means you should always make sure you’re not getting yourself into a situation you won’t be able to pay back; loans can be incredibly useful but they can also be a gateway to greater debt if you’re