Whichever way you look at it, the UK’s debt mountain is continuing to grow year-on-year, peaking at more than £300 billion (or £11,000 per household at the end of 2021).
This number also grew at a rate of 11% or £80 million a day through 2021, creating a significant issue for households across the board.
Of course, unsecured loans are just one iteration of this financial product, so what other options are available, and what’s required to make a successful application? Let’s find out!
The Different Types of Loans Available
As people take out loans for a myriad of different reasons, it stands to reason that there should be multiple types of products available.
We’ll reference some of these below while asking about the circumstances that may compel you to apply for such a loan:
- #1. Unsecured or Personal Loan: The most common type of loan, this product is unsecured which means that it doesn’t include any collateral at all. However, this means that it tends to be underpinned by a higher rate of interest, while there are usually caps in place in terms of how much you’re able to borrow.
- #2. Secured Loan: Conversely, a secured loan sees you borrow a potentially larger sum of cash against a relevant asset, such as a car or home. A mortgage arguably provides the best example of secured borrowing, while businesses can also secure a loan against their company assets.
- #3. Guarantor or Bad Credit Loans: In instances where you have a bad or non-existent credit score, you may be able to identify a specialist loan that takes into account your circumstances. Similarly, you can take out a loan that includes a so-called “guarantor”, who’s typically known to you (and has a good credit score) and is willing to take responsibility for the loan if you’re unable to pay.
What’s Required to Apply for a Loan?
As we can see, there are multiple types of loans, some of which may be unavailable depending on your precise financial circumstances. However, there are also universal factors to consider when applying for a loan, including the following:
- #1. You Must be 18 Years or Older: This is a must when applying for any type of loan, as you must be an adult in the eyes of the law to be accepted for any line of credit. You must also be a UK citizen or have the right to work on these shores, while those of you who plan to take out a business loan will need either an existing venture or concrete plans to start one.
- #2. Have a Good Credit Record: While some credit card or loan companies may make you an offer when you turn 18, you’ll typically need a good credit history to be accepted for a loan. This indicates trustworthiness and the fact that you can be considered reliable by lenders, although some firms also offer so-called “bad credit” products in certain circumstances.
- #3. The Motivation for Borrowing: Finally, you’ll need to understand your motivation for borrowing before you push ahead with your financial plans. The reason for this is simple; some issues simply aren’t suitable and shouldn’t be resolved by taking out a loan. These include coping with living costs and funding a big purchase, while it’s also not a viable alternative to entering into a debt repayment plan.