Different types of loans and their jargon explained
Different types of loans and their jargon explained
When it comes to take a loan there are many different types to choose from all with their own jargon. Here I explain what all the different types of loans are and explain the jargon.
Secured Loans
Secured Loans are loans that are taken out and secured against an asset, normally your home. It could be your car or anything that is valued more than your loan. The asset you have secured is known as collateral' in the loan, meaning that it serves as protection for the lender, so if the borrower fails to pay the loan and interest under the terms of the loan then the lender becomes the owner of the collateral.
Unsecured Loans
Unsecured loans do not have any collateral against it which generally means the borrower is a lower risk. This doesn't mean that if they fall behind on repayments they will be let off, far from it, they may receive court judgements which force them to repay the amount or worse case scenario face bankruptcy. Compared to secured loans these types of loans are generally smaller amounts and are lent over a shorter period of time.
Debt Consolidation Loans
This type of loan is one loan that replaces many other loans. The money is used to pay off other loans so that you just have one debt and one lender to repay. These loans can help lower monthly debt repayments. You can either spread the loan over a longer period of time which will normal mean paying a higher interest rate.
Payday Loans
Payday loans are short term loans of up to 500. They are paid back within 30 days or sometimes more if the lender allows. These loans are generally paid on your next payday hence the name payday loan'. They don't check your credit history, and you just have to be over 18 and have been working for the past 3 months and have a bank account. The money is lent very quickly sometimes within 24 hours.