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It is often taken for granted by the finance industry that everybody knows the differences between types of loans, and the common terms that surround them. However, if you've never had the need for a loan before, it's only natural that the whole process can seem a little confusing. Once you sort out the basic terms and kinds of loan available, then finding the loan that fulfils your needs should be much easier.
Generally, loans are divided into two large categories: secured, and unsecured (or personal) loans. Secured loans are loans in which you will have to provide something to use as collateral, such as a property. Collateral can then be seized by the money lender if you do not meet any loan repayments. This is mostly to provide the lender with security, as secured loans are mostly for large sums of money. Secured loans are generally only offered to homeowners, as their property is then taken as collateral. You can borrow money over a long period of time, with companies like Alliance and Leicester offering secured loans over terms from 5 to 25 years, and can arrange manageable repayments that you shouldn't have to worry about failing to meet.
Unsecured or personal loans differ from secured loans in that you should not be asked to put any assets up for use as collateral. Because of this, personal loans do not cover such large sums of money, for example Asda Finance's personal loans go from £7,500 to £25,000, whereas their homeowner (secured) loans go up to £150,000. Also as a result of the unsecured nature of personal loans, the interest rates are generally much higher than on secured loans. This means that you are more likely to pay back a significantly larger sum of money than you borrowed with a personal loan, but then again you won't have to worry about forfeiting your home if you can't make the repayments. Still, if you are a homeowner and are looking into getting a secured loan, don't be put off by any scary 'what ifs' - most banks should do their best to ensure that you are able to meet payments and will only use their hold on your assets as a last resort.
Once you have worked out which of those two best suits your needs, then you can start looking into the details and shop around a bit to find the best rates and terms available. The bigger banks like Natwest will generally offer better rates on loans than smaller companies. Remember that a loan is not something to go into without careful consideration first as to what you really need - as long as you are clear on what you're looking for your decision should be much easier.
Rates quoted are correct at the time of writing (12.04.08) and may be changed at the discretion of the product provider.
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