Thinking about a personal loan but don’t know your fixed rate from your variable? The difference between secured or unsecured? Don’t worry, you’re not alone. Here, loans by mal takes you under a sturdy wing to guide you through the jargon.
Secured or unsecured?
Is the number one question.
A secured loan works by borrowing against the value of something you own, such as a car or a house – also known as collateral. If you can’t make your repayments, then the lender can sell your collateral to get their money back and give you what’s left. Because it’s less risky for the lender, you’ll often pay a lower rate of interest and you might get approved for a larger sum. The downside is that you could lose your home if you can’t repay your loan, plus lenders will sell to get their money back, not to get you the best price.
Unsecured loans, on the other hand, allow you to borrow without having to put up any collateral. Because there’s more risk that the lender won’t get their money back, interest rates can be higher and you might not get as much money as with a secured loan. Unsecured loans are likely to use your credit score to estimate risk to the lender.
What’s a guarantor loan?
It’s a type of loan you take out with someone else who agrees to pay your debt if you can’t. This person is called a ‘guarantor’ and they’ll usually be a friend or family member. A guarantor loan is a type of unsecured loan since neither you nor your guarantor puts up any kind of collateral.
Guarantors help reduce the risk to the lender, so they could be a good alternative
for people with a poor or limited credit history who might struggle to get a loan. Bear in mind that if your guarantor gets stuck paying off your loan, you might not be on their Christmas list.
What’s the difference between a variable interest loan and a fixed loan?
Simply put, with a fixed-rate loan the interest stays the same throughout the borrowing period, regardless of the economy or any other factor. With variable rate loans, the interest rate can go up or down depending on market conditions. This question crops up with bigger loans that you’ll be paying off for longer, like a mortgage.
With a fixed rate, you’re able to see how much you’ll pay each month and the total you’ll pay overall, which can make budgeting easier. A variable interest loan is more of a gamble – while you might benefit if interest rates drop, you’ll pay a higher rate if they rise, meaning that it can be harder to budget.
What’s a debt consolidation loan?
A debt consolidation loan rolls up all your debts into one, ideally with a lower interest rate and a speedier payoff time. Having fewer payments to juggle and saving on interest can simplify your finances and help you pay off debt. On the downside, you could end up in more debt if you go on a spending spree with freed up space on your credit cards.
What’s a payday loan?
Payday loans are short-term loans originally designed to tide people over until payday. Normally you’ll have until your next payday to pay back your loan plus interest, although these days some payday lenders will let you choose the repayment period. What all payday loans have in common is that they’re high cost, short-term, and often for small amounts. Although a payday loan can seem like a quick fix when you’re strapped for cash, they can quickly trap you in a cycle of debt if you can’t afford to pay back on time.
Read our article here.
We’re not a payday loan company and you won’t need a guarantor to be approved for a loan with us. loans by mal offer unsecured loans up to 1 month’s income, helping with one-off purchases and unexpected events.
Looking for more information on personal loans or boosting your credit score?
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loans by mal offers short term, unsecured loans based on your monthly income.
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Representative 53.9% APR