What type of loan is right for you?

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Picking the right loan could make your borrowing cheaper, easier to manage and lower risk. Here is how to choose the right one out of the different types of loans available.

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Why do you need to borrow?

Why you need the money and how you intend to use it will generally determine what types of loans you should consider.

For example, the types of loan you will need to pay for a holiday will differ from a loan to buy a car or to buy your first home.

Some of the reasons you may need a loan include: 

  • Buying a car

  • Buying a home

  • Debt consolidation

  • Paying for a wedding

  • Making a large purchase

  • Financing a holiday

  • Making home improvements

  • Starting a business

What are the different types of loans can you get?

There are two main types of loans:

Unsecured loans: These are loans for which you don't have to provide a security such as a home or asset. You borrow a lump sum and pay it back in fixed instalments over a set period of time.

Secured loans: These are loans which have an asset attached to them, such as your home. In the event that you are unable to repay the loan, the bank or loan provider can repossess the asset and sell it to recoup the amount you borrowed.

If you have a choice between the two, it’s typically safer to opt for unsecured borrowing because it doesn’t put your assets directly at risk if something goes wrong.

Here is how to choose between unsecured and secured loans

Unsecured loans

You can use the money from an unsecured loan for almost anything you choose and common types include:

Secured loans

Secured loans are more likely to come with restrictions on what the money is used for. Some bridging loans, for example, have to be used to buy property. The common types include:

Our award winning broker can guide you through the process, tailor searches to suit your needs and help you find the right loan.

How much can you borrow?

Most unsecured loans let you borrow between £1,000 and £25,000.

If you want to borrow more: You may need to consider a secured loan instead where the limits are much higher.

If you want to borrow less: Here are your options.

Here is how much you could borrow with each type of loan if you pass the lender's affordability criteria:

Unsecured borrowing amounts

Updated 20 April 2023
Type of loanBorrowing amounts
Personal loans£1,000- £25,000*
Peer to peer loans£1,000 - £35,000
Guarantor loans£1,000 - £10,000*
Debt consolidation£1,000 - £25,000*
Bad credit loans£1,000 - £25,000*

* On rare occasions, you may be able to borrow up to £50,000, so speak to an adviser.

Secured borrowing amounts

Updated 20 April 2023
Type of loanBorrowing amounts
Homeowner loans£1,000 to £2.5 million
Bridging loans£5,000 - £250 million
Debt consolidation£10,000 to £2.5 million
Vehicle financePrice of vehicle

How long do you need to pay it back?

Most unsecured loans offer terms of between one and seven years, but some types of loans offer shorter and longer repayment periods:

If you need longer to pay it back: Some secured loans offer terms up to 10 years.

If you plan to pay your loan back quicker: Some peer-to-peer loans last just twelve months and many have no early repayment charges. If you need to borrow a large sum, bridging loans are designed for short-term borrowing.

Here is how long you could borrow for with each type of loan:

Unsecured borrowing terms

Updated 20 April 2023
Type of loanBorrowing terms
Personal loans1 - 7 years
Peer to peer loans1 - 5 years
Guarantor loans1 - 5 years
Debt consolidation1 - 10 years
Bad credit loans1 - 5 years

Secured borrowing terms

Updated 20 April 2023
Type of loanBorrowing terms
Homeowner loans3 - 25 years
Bridging loansShort term, but no set time
Debt consolidation3 - 35 years
Vehicle finance1 - 5 years

What else should you think about?

As well as how much you need to borrow and for how long, think about:

Your credit record

If you have poor credit, the types of loans you can get may be more limited and expensive.

However, some types of loans are specifically tailored to borrowers with bad credit including:

Lenders offering these types of loans are more willing to consider your application, but you may be charged more for the loan. These types of loans also need to be thoroughly researched before you take one out so that you, and any other people named on the loan, fully understand all the terms and conditions.

If you have a strong credit record then you can choose from all the different types of loans and you should qualify for some of the cheapest rates on personal and peer-to-peer loans.

Here is how your credit history affects your loan application

Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.

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