There are many different types of long-term loans available on the market, and it can be challenging to determine which one is right for you. In this blog post, we will discuss the different types of loans and help you figure out which one is best for your needs.
We will also provide information on applying for a loan and what to expect during the process. So, whether you are looking for a personal loan, a mortgage, or a car loan, read on for all the information you need!
1. Personal Loan
A personal loan is perhaps the most common type of long-term loan. You can use a personal loan for various purposes, including debt consolidation, home improvement, or even a large purchase. Personal loans typically have fixed interest rates and monthly payments, making them easy to budget for.
These loans work by borrowing a lump sum of money and then repaying it over a set period of time, usually between one and five years. You will need to have good credit to qualify for a personal loan, as they typically have low-interest rates compared with types of credit like credit cards and payday loans. You can get a personal loan even with a poor credit score, but your interest rate will generally be much higher.
Some of the advantages of using a personal loan include the ability to make extra repayments without penalty and the fact that they can be used for various purposes. However, one downside is that personal loans typically have higher interest rates than other types of long-term loans, such as mortgages.
2. Car Loan
A car loan is a type of long-term loan that is used to finance the purchase of a vehicle. Car loans typically have fixed interest rates and monthly payments, making them easy to budget for.
Car loans work by borrowing a lump sum of money and then repaying it over a set period of time, usually between one and five years. You will need to have good credit to qualify for a car loan, as they typically have low-interest rates compared with types of credit like credit cards and payday loans. Even with poor credit, it is possible to get a car loan, but your interest rate will generally be much higher.
Some advantages of using a car loan include things like the ability to make extra repayments without penalty and the fact that they can be used to finance the purchase of a new or used car. Car finance can also be tax-deductible, can help you build up your credit score, and you’ll typically be able to take out a loan for the entire value of the car.
However, as with all loans, you will need to pay regular payments and should you fail to do so, your credit score will suffer. That’s a worst-case scenario, but it’s certainly a risk you should understand and consider prior to taking out a new loan.
When taking out a car loan, there may also be restrictions around your use of the car, depending on the loan you take out. This includes getting certain packages for insurance and liability cover, and you may be subject to mileage limits, but this all depends on the loan provider you’re working with and their terms and conditions.
3. Home Loan
A home loan, also known as a mortgage, is a type of long-term loan that is used to finance the purchase of a property. Home loans typically have low-interest rates as they’re secured against your home.
Home loans work by borrowing a lump sum of money and then repaying it over a set period of time, usually between five and 30 years, typically with monthly payments. You can take out these loans with one or more people, and the loan is secured against your property. This means that if you default on the loan, your lender can repossess your home.
Mortgages are governed by the concept of loan to value (LTV), which means that you can only borrow a certain amount of money in relation to the value of your property. So, for example, if your home is worth £200,000 and you have a mortgage that is restricted to a maximum of 80% LTV, then you can only borrow up to £160,000.
There are many pros to taking out a home loan. For example, they tend to have much lower interest rates than other types of long-term loans, such as personal loans and credit cards. Fixed rate home loans also give you the stability of knowing how much your monthly repayments will be for the duration of the fixed rate period, which can make budgeting a lot easier. And, of course, once you’ve paid off your mortgage, you’ll own your property outright.
There are some disadvantages to home loans, too. For example, if you take out a variable rate mortgage, when interest rates rise, then your monthly repayments will go up, too. This can make it challenging to keep up with your repayments if your income doesn’t increase simultaneously.
What’s more, if you miss a mortgage payment or default on the loan, then your home could be repossessed, which is a very serious consequence.
4. Small Business Loan
A small business loan is a type of long-term loan that is used to finance the start-up or expansion of a small business. Small business loans typically have fixed interest rates and monthly payments, making them easy to budget for.
Small business loans work by borrowing a lump sum of money and then repaying it over a set period of time, usually between one and five years. You can take out these loans with one or more people, or in a Ltd company name, and the loan is secured against your business’s assets using a debenture. This means that if you default on the loan, your lender can repossess your assets.
5. Education Loan
An education loan is a type of long-term loan that is used to finance the cost of higher education, such as tuition fees, living expenses, and books. These loans are also commonly referred to by many as ‘student loans.’
Education loans work by borrowing a lump sum of money and then repaying it over a set period of time, usually between one and five years.
According to the UK government website (April 2022), if you’re a full-time student, you can get up to £9,250 for a general course or up to £11,100 if you’re undertaking an accelerated degree course. However, there are actually two kinds of loans within the term’ student loans’. These are Tuition Fee Loans and Maintenance Loans. Tuition fees are the fees charged by universities or colleges for teaching you your course. You can get a Tuition Fee Loan to cover the cost of your tuition fees, and this doesn’t have to be paid back until after you’ve left your course. A Maintenance loan is money given to help with living costs, such as rent, food, and travel. You have to pay this back once you’ve left your course and earn over a certain amount.
There are many pros to taking out an education loan. For example, you don’t have to start repaying your loan until you’re earning over a certain amount, giving you some breathing room after you finish your studies. Currently, at the time of writing, this sits at the £388 per week mark, or £20,195 a year.
Education loans also give you the stability of knowing how much your monthly repayments will be for the duration of the loan, which can make budgeting a lot easier. And, of course, once you’ve paid off your loan, you’ll be debt-free.
6. Long-term Payday Loan
A long-term payday loan is a type of short-term loan that you can take out and then repay over a longer period of time, usually between three and six months. These loans are typically taken out for small amounts of money, such as £100 to £500, and they come with very high-interest rates – sometimes as much as 2000% APR.
Long-term payday loans should only be used as a last resort because the interest rates are so high. If you’re struggling to repay your loan on time, you may have to pay even more in charges and fees. It’s also worth noting that these types of loans are often advertised as ‘no credit check’ loans, but this isn’t strictly true. Lenders will still carry out some form of credit check, even if it’s just to see if you have any outstanding debts. So, if you’re considering taking out a long-term payday loan, make sure you understand all of the risks involved before you sign on the dotted line.
However, if used in the right way, these could help out massively. For example, some of the advantages include getting money into your account quickly (mostly within 24 hours, usually instantly), and the requirements are usually easy to meet. These can vary depending on the provider but usually include;
- You must be 18 years old or older
- Have a government ID, like a driver’s licence or passport
- Have a regular source of income
- Have an active bank account
The loans are also usually unsecured, so you don’t need to put up any collateral. However, there are, of course, some disadvantages to using such a loan. These can include the very high-interest rates, as we’ve already mentioned, and the fact that you could end up in a cycle of debt if you’re not careful.
7. Secured loans
A secured loan is a type of loan that’s backed by an asset, such as your home or car. This means that if you can’t repay the loan, then the lender could take your home or car away from you. Secured loans usually come with lower interest rates because they’re less risky for the lender. However, they’re still quite risky for borrowers because you could end up losing your home if you can’t repay the loan or whatever collateral you put up.
The advantage of using a secured loan is that you’re more likely to be approved for one because the lender will have security over your asset. This also means lower interest rates and typically means you’ll be able to borrow larger amounts. You’ll also get access to longer repayment terms and still have the ability to build up your credit score with regular and consistent, on-time payments.
The disadvantages, however, are that you could lose whatever collateral you put up if you’re not able to keep up with your repayments. If it’s taking you a while to pay back your loan, you may also end up paying a lot in interest, which can make the loan quite expensive overall, even if the monthly costs are low.
Finally, you’ll need to check if there are any other costs associated with your loans, such as set-up fees or early repayment charges, as these can also increase the cost of your loan.
There are many different types of long-term loans available in the UK, each with its own advantages and disadvantages. It’s important to understand all of the different options before you make a decision about which one is right for you.
Which type of long-term loan is best for beginners?
If you’re new to taking out loans, then it’s probably best to start with a personal loan. This is because they tend to have lower interest rates and are more flexible regarding repayment terms. You can also shop around for the best deal on a personal loan, so you’re not tied to one particular lender.
Remember, taking out a loan is a big commitment, so make sure you understand all of the different types of loans available before you make a decision. And always shop around to get the best deal for your circumstances.
Which long-term loan has the least amount of requirements?
The long-term loan with the least amount of requirements is a payday loan. All you need to be eligible for one of these loans is to be 18 years old or older, have a government ID, and have a regular source of income. You also need to have an active bank account.
However, there are some disadvantages to using these types of loans, such as the high-interest rates and the fact that many companies are seen as predatory. This is due to a perception that they aim to keep you in the debt cycle, therefore making them money for as long as possible. To combat this, you need to make sure you’re examining all of the different options available to you before deciding on a loan, and always make sure you can repay the loan before taking it out.
How do long-term loan interest rates compare to short-term loan interest rates?
The interest rates on long-term loans are generally lower than the interest rates on short-term loans. This is because long-term loans are seen as less risky for lenders, so they’re willing to offer lower interest rates. However, this doesn’t mean that long-term loans are always cheaper than short-term loans, as there are other factors to consider, such as fees and charges. You should always compare the total cost of the loan before making a decision.