Not sure which loan option is best for you? You will soon.

By Charlotte Yau

In need of some cash but not sure which loan option is best for you? See which situation each loan category is aimed at.

So you’re in need of some cash but you’re not quite sure what type of loan you need for your situation, it is confusing – there are so many different loans on the market but what do they really mean? Which is the best for you? Take a look at this simple breakdown for the different types of loans on the market.

Online loans

An online loan is pretty much what it says on the tin – a loan that is applied for and granted completely online. You fill in all the paperwork and you (normally) find out within the hour whether or not you’ve been accepted for the loan. It’s much quicker than a traditional loan where you may have to wait for documents to come through the post or pop to your local branch to sign some forms. Even managing the loan tends to be completely online with tools to set up direct debits, keeping track of your payments and reviewing your statements. Online loans are usually short-term, unsecured and for smaller amounts (around £2,500). Basically if you need a small amount of money, for a short period of time and you need it quickly then an online loan might be your best option – ideal for replacing a broken car/one who hasn’t passed its MOT or a broken household appliance.

Quick loans

Quick loans are generally granted within 10-15 minutes of application and paid into your account within the hour. Most often they are done online, are expected to be repaid within a month and come with a large interest rate. They are intended for people who need money fast and most often in an emergency – broken down car, unexpected bill.

Cash loans

Cash loans are done in person with a representative of the company loaning the money. This can either be repaid in regular instalments which include the interest to be paid or have a fee deducted from the total amount needed. Places that offer cash loans tend to be cheque cashing shops or doorstep lenders and are for much smaller amounts that can be repaid over a short period of time. Cheque cashing shops tend to lend until your next payday but can extend for another month at a cost. There isn’t normally a credit check required for a cash loan but they can still damage your credit rating if you fail to meet the repayments. These loans are intended for much smaller purchases such as your mobile phone repairs. 

Peer-to-Peer - There is a new way of getting a loan, one where bankers don’t have the last laugh. It’s called peer to peer lending (P2P).

It involves, indirectly, borrowing money from a member of the public; someone who has a bit of spare cash lying around and who is happy to lend it to you for however long you want. To know more about this, heres a more in depth article.

Instalment loans

Instalment loans are pretty much any loan that is repaid over a longer period of time. Some short term loans will only have one repayment date, such as a payday loan, whereas larger loans that are repaid over a longer period of time have multiple repayment dates. Personal loans, mortgages and credit are all technically instalment loans.

Short-term loans

Another loan that is what it says on the tin, a short term loan is just that – a loan repaid over a short term. Again these tend to come in the form of a payday loan, with some even offering up to a year to repay the amount but they are aimed at people who need a smaller amount of dough.

Personal Loans

These are much more of your traditional loan that are offered through banks or building societies and are aimed for larger purchases over a longer period of time. These can often take longer to be accepted for because banks will want to go through your income and outgoings to ensure you can make payments, as well as checking your credit rating, before they lend you the money. Personal loans can be unsecured or secured against something of value (such as a car or house) for a larger amount. These loans are mostly intended for people who are in work, can easily afford the repayments and are looking to make home improvements, buy a new car, a student loan or debt consolidation

Monthly / Emergency loans

Again, another way of peddling a payday loan – advertised as a loan for a month, until payday or if you’re in need of some quick emergency cash. They come at a higher rate of interest and if you can’t repay on the day you say there can be some pretty heavy fees slapped on. These really are a last resort and aimed at people who can afford to make the payment at the end of the month.

Almost any type of loan can have an effect on your credit rating, even the cash loans (if not repaid) can be sent to a collection agency which will apply defaults to your rating.

Top takeaway

There are a lot of different types of loans available, many of them giving you instant cash when you need it but not all of them are suitable for every borrower. A loan should never be willingly taken out if you know you can’t repay it. Borrowing from a friend or family member is always better than taking out credit, if you’re not in that position then look at reputable sources over payday lenders – they have an undesirable effect on your rating. Always take the time to decide which is the best loan for you and if the loan is necessary.

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