Explained: Which types of loan are best for you? 

Today, there are lots of ways of borrowing money. While many of us carry a credit card around for day-to-day purchases, applying for a loan might be necessary if you’re looking to spread the cost of something a little more expensive. So, to help you decide how best to access credit, we introduce you to five types of loans that you can apply for and explain which are best suited to your borrowing requirements. 

Unsecured loans 

One of the best options if you’re looking to borrow money is to apply for a personal, unsecured loan. At Koyo Loans, we provide unsecured loans between £1,500 and £12,000. 24.9% APR Representative. To apply for an unsecured loan, you need to meet certain eligibility criteria, but you don’t need to secure the loan against any of your assets. 

Once approved, the stipulated amount will be deposited into your account, which you can then use to pay for a range of products and services. You will then be required to pay back the amount over an agreed period of time, with interest. You can use unsecured loans to move house, consolidate debt, or even pay for a car. 

Secured loans 

Another option is to apply for a secured loan, which uses one of your assets as collateral in the agreement. In other words, if you aren’t able to pay back the money, you will lose the asset. Most secured loans use your home as collateral, so you need to be confident that you can meet the repayments before signing an agreement. 

The collateral offered in secured loans means the arrangement is less risky for lenders, which often lowers the interest rates. You can also typically apply for higher amounts of money when you arrange a secured loan.

Guarantor loans 

Guarantor loans work similarly to secured loans, but instead of using an asset as collateral, they use a person. This person is responsible for the loan repayments if you default or are unable to meet the requirements. 

Although guarantor loans are relatively high risk for the borrower and guarantor, they present a good option for people with poor credit scores. In most instances, the guarantor on your loan will be a family member or close friend who can afford to take on the loan if you default. 

Car finance loans 

Although you can pay for a new car with an unsecured loan, there are so many options when it comes to spreading the cost of your new wheels. Dealers offer personal contract purchase (PCP), hire purchase (HP), and personal contract hire (PCH) arrangements, all of which come with their own rules and regulations. 

So, while there are lots of ways to fund the purchase of your new car, make sure you fully understand the terms and conditions of each before coming to a decision.

Payday loans 

According to Money Helper, the average APR on a payday loan can be up to 1,500%. Payday loans are an option for people with particularly poor credit scores, but you should only look at them as a last resort. They’re super expensive and often need to be paid back in a short space of time, while they’re only helpful for small amounts of money. 

What’s more, applying for a payday loan can be seen as a sign of desperation by lenders, which can negatively affect your credit score. So, we’d suggest looking at as many different options as you can before taking out a payday loan. 

Apply for a personal unsecured loan today 

While there are lots of different loans you can apply for, unsecured personal loans are affordable, easy to apply for, and can be used for a range of purposes. Get started with our loan calculator today to see how much you can borrow and for how long. Whether you’re looking to fund a home extension or pay for your dream holiday, an unsecured, personal loan could be the ideal way to finance it. 

Koyo Loans is the trading name of BETR Technology Ltd. Company No. 11483187. Registered Office: Huckletree Soho, Ingestre Court, Ingestre Place, London, W1f 0JL