Taking out a loan can be a less straightforward process than you might think. If you’ve never done it before, then you might have a perception that it’s as simple as walking into a loan provider’s office or a bank and simply asking for money. Nothing could be further from the truth, though; there are many processes around applying for loans, a lot of which can be arcane and difficult to decipher. It’s definitely worth learning as much as you can about loans before you apply, so here’s our beginner’s guide on what you need to know about loans in 2022.
Not all providers are the same
You might think that it doesn’t matter where you get your loan from, but that’s simply not the case. Just like you can buy items from different shops, there are different loan providers out there, each with their own terms, conditions, and approach to lending. As such, it’s important to find the right one for you if you’re going to apply. We’d recommend starting with a reputable, reliable provider like Loans2Go, which has a history of helping many and varied customers to achieve their desired result when it comes to loans.
Unsecured vs. secured loans
Broadly speaking, there are two different types of loans: secured and unsecured. There’s a big difference between them, so you don’t want to apply for the wrong one and end up with a loan that doesn’t suit you. Here’s a quick rundown of both types.
- Secured loans refer to loans that are “secured” against the value of an asset you hold. Usually, this is your house; many people who take out loans do so against the value of their home, with the understanding that the home will be taken as collateral if the loan is not repaid. Sometimes, you’ll also find secured loans taken out against vehicles, or, rarely, other assets.
- Unsecured loans are, as you might imagine, loans that don’t have any kind of collateral security. In essence, these are cash sums lent to you on the promise that you will repay them with interest. You will usually find that unsecured loans are lower in value, but they’re also lower-risk, so you’ll need to make a decision about what kind of loan you want.
Different types of loans
As well as the divide between secured and unsecured loans, there are also different kinds of loans within those two categories. Here are some of the different kinds of loans you might want to apply for.
- Payday loans are usually very short-term loans – often, the terms are just a few weeks or months – for a small amount of money. The interest on payday loans can often be very high, so it’s important you don’t take a payday loan out unless you can be absolutely sure you’ll be able to pay it.
- Debt consolidation loans refer to loans that collect several disparate existing debts and consolidate them all. You can often get more favourable terms with debt consolidation loans, so people with lots of different sources of debt might want to consider them, but there are caveats, so make sure to research this option if you’re thinking of taking it.
- Guarantor loans require you to name a “guarantor”, which is someone who will take on the debt if you don’t manage to pay it. Usually, this has to be someone close to you, but lenders will often let you pick anyone as long as they meet the specific criteria set by the lender (which you should read thoroughly, by the way).
- Credit builder loans let you build up a credit score if you find that yours has been negatively impacted in some way. Usually, you won’t actually get the balance of the loan straight away; you’ll pay into an account, and the amount will be released to you at the end. This is so you can show potential credit lenders that you are capable of making regular repayments on a loan.
Don’t take out loans if you can’t pay them back
This might sound obvious, but if you can’t pay a loan back – that is, if you can’t guarantee that your financial circumstances will improve enough to make regular repayments – then you absolutely should not take a loan out if you can help it at all. Eventually, not being able to make repayments will just make your financial situation worse, so you should only do this if it’s the only option available or if you know that you’ll be able to responsibly repay your loan. The last thing you want is to further complicate your financial situation when you were just trying to get out of debt, after all.
You can often negotiate with lenders
In many cases, you can negotiate with your lender regarding the terms of your loan repayment and other important elements of the loan. As such, if you feel that you’re stuck and have no recourse, this may not be the case; you might be able to talk to your lender and agree on more favourable terms for yourself. Don’t give up before you’ve attempted this. While it is true that lenders have a bottom line to look after, if they are reputable, they’ll be willing to help you, especially if you’ve decided to borrow from a bank or a building society. Open up channels of communication and you might be surprised at what you can accomplish!
These are just some of the things you need to know about loans in 2022. When you take out a loan, many of the things that might happen will be entirely personal, so only you will know how to deal with them. However, we hope that with the information we’ve outlined above, you’ll find the process just a little less intimidating.