UK Loans

There are many different types of loan plans available to consumers in the UK today. Most are predominately mainstream, whereas some however are not. This guide has been written to provide loan shoppers with an idea as to what options available to them.

Defining UK Loans

UK loans are a widely available source of additional funding, which are used on a regular basis by individuals in the UK for any number of purposes, from purchasing household items, purchasing a new car or even a new home, to consolidating other debts, such as credit cards and other loans, into one easily manageable monthly payment.

A UK loan is one where the lending company providing the loan is based and registered in the UK and the loan itself is based on Sterling currency rather than other foreign currencies. The interest rates charged on UK loans are also based on UK rates, whether this is the Bank of England base rate or LIBOR (London Inter bank Offered Rate).

Although the majority of UK residents would be most likely to apply for a UK loan, probably even without thinking about, or even being aware of alternatives, it is quite possible to obtain a foreign currency loan. There are potential advantages to this course of action, but there are also many drawbacks. The advantages of a foreign currency loan over a UK loan could include: potentially lower interest rates; many European countries have much lower interest rates than the UK and this would be reflected in the monthly repayments. The most likely scenario for a foreign currency loan over a UK loan however, would be where, for example, an individual was paid in that particular currency, or had business interests abroad. In this case, a foreign bank account and a loan in the local currency would be a great advantage, as the individual would not have to concern themselves with exchange rates of the respective currencies.

The same situation could apply to someone wishing to purchase foreign property via a mortgage. In this case, a foreign lender would be more likely to provide a loan, although many UK lenders now also offer foreign currency loans in certain situations. The main disadvantage of foreign currency loans over UK loans would be for someone living in the UK and being paid in Sterling. Although interest rates may be cheaper abroad, the constant fluctuation in exchange rates would make it very difficult to track the real cost of the loan and if the cost of Sterling were to drop against the chosen currency, what started out as a cheap loan could end up being extremely expensive over the long term.

Common types of UK Loans

UK loans can take various different forms depending on what they are to be used for. The most common types are listed below:

• Unsecured UK Loans - Unsecured UK loans are widely used for personal lending to individuals, usually for smaller amounts of money. The lender does not take any security (such as taking a legal charge over the borrowers' home) from the borrower to cover the balance of the loan. This makes it suitable for someone who does not own their own home or other assets. An unsecured UK loan does, however, increase the risk to the lender, due the fact that they are unable to seize assets belonging to the borrower in the event of them defaulting on the repayments of the loan. Because of this, unsecured UK loans tend to be for relatively small amounts, over short terms and the interest rates charged are usually higher than other types of UK loan.
• Secured UK Loans - Secured UK loans are available to those individuals who have assets to cover the loan. In most cases the security used would be the borrowers' own home, although other items could also be used, such as valuable belongings, or other property. The lender takes a legal charge over the property with a secured UK loan and has the legal right to claim said property should the borrower default on the loan. This is a far more attractive proposition for a lender, as they are more likely to be able to recoup their losses in this situation. As a result of this security, secured UK loans are usually available for larger amounts, over longer periods, with the likelihood of lower interest rates.
• Hire Purchase Agreements - Hire Purchase agreements are another form of UK loan and are widely used by institutions such as car finance companies and retail organisations who provide expensive consumer goods. These work in much the same way as Secured UK loans except that the security for the loan is taken on the property being purchased, rather than on the borrowers' home. Hire Purchase agreements can vary greatly in cost, depending on the type of product being purchased. Indeed, many organisations are prepared to offer 0% finance on certain items, in order to entice a consumer to purchase the product from themselves, rather than a competitor.
• Mortgages - Although many people do not consider them in the same way as other types of UK loan, mortgages are probably the most common type of UK loan available today. A mortgage is simply a secured loan (albeit, usually for a much larger amount over a longer term) with the security being the borrowers' home. A mortgage company would always take a first legal charge over the property, regardless of any other loans which were secured on it, making it a relatively safe risk for the lender (for the reasons discussed previously). Due to the large amount of loan and long term, mortgages often have some of the lowest interest rates available of any UK loan, although they can work out more expensive over the longer term.

In Summary

There are many lenders who are prepared to provide UK loans. These would include Banks, Building Societies, loan and mortgage companies and specialised lenders. There are also various ways to find both the most suitable type of loan required for an individual as well as the most suitable provider of the UK loan. Before taking out any type of UK loan, a potential borrower should either consult a specialist broker, with access to the whole market, or make use of one of the many internet price comparison sites which are now available to assist consumers in making the right choice for their UK loan plan.