What Are The Different Types of Loans?

A loan is a financial arrangement in which a lender provides funds to a borrower with the understanding that the amount will be repaid, usually with interest, over a specified period. Loans are widely used to fund significant purchases, investments, or financial emergencies.

In the UK, loans are classified based on their purpose, repayment structure, and eligibility criteria. They cater to a range of financial needs, such as buying property, consolidating debt, or financing a major life event.

6 Different Types of Loans

The UK offers a variety of loan types. Here is an overview of the most common options:

1. Secured Loans

Secured loans are backed by collateral, such as property, vehicles, or other valuable assets. This collateral reduces the lender’s risk and often results in lower interest rates. Examples of secured loans include mortgage loans for purchasing property and equity release loans, which leverage the value of existing properties. 

Secured loans work best for individuals or investors with valuable assets seeking larger loan amounts or lower rates.

2. Unsecured Loans

Unsecured loans do not require collateral. Instead, they rely on the borrower’s credit history and income for approval. This loan type is best for borrowers with strong credit who need flexibility without risking personal assets.

This type of loan includes personal loans, which are used for various purposes, including home improvement, medical expenses, or weddings. Another example is a debt consolidation loan designed to combine multiple debts into a single repayment. 

3. Buy-to-Let Loans

These loans are designed for purchasing properties intended for rental. They often have higher deposit requirements and are typically interest-only. The rental income should typically cover 125%-145% of the monthly interest payments for buy-to-let loans. This type of loan is tailored for investors building or expanding rental portfolios and is ideally suited for overseas buyers or investors exploring UK property markets.

4. Bridging Loans

Bridging loans are short-term loans that provide quick access to funds, often for property purchases, before a permanent mortgage is secured. They usually have higher interest rates due to the loan’s short-term nature. Investors looking to secure a property quickly in competitive markets can consider this loan type while arranging long-term financing.

5. Asset-Based Loans

Asset-based loans are a type of secured loan where approval is based on the asset’s value rather than the borrower’s credit history. The loan is secured against the value of a borrower’s property or other tangible assets, making it an accessible option for non-residents and overseas buyers who need financing for UK property investments.

6. Business Loans

Business loans are designed for entrepreneurs and companies to fund operational costs, expansions, or specific business-related projects. There are start-up loans for new businesses and working capital loans to cover day-to-day expenses.

Choosing the Right Loan Type

Selecting the right loan type depends on your financial goals, eligibility, and repayment capacity. Consider the following:

Purpose of the Loan

Consider the reason for the loan. Are you purchasing property, consolidating debt, or funding a personal need? For property purchases, secured loans or buy-to-let mortgages may be ideal.

Repayment Terms

Short-term loans, like bridging loans, might suit your immediate needs but come with higher interest rates. Meanwhile, long-term loans, like mortgages, offer stable and lower monthly payments.

Eligibility

Find out the loan requirements and assess your credit history and income documentation. For overseas buyers who lack UK credit, asset-based loans from GOGOPROP are a practical option.

Rates and Fees

Compare rates and check for hidden fees, such as prepayment penalties or administrative charges.

Security and Transparency

Consider the loan application process, its transparency, and whether the lender can deliver what you need within the required time frame. 

GOGOPROP Loan Services

GOGOPROP is a digital lender that offers an innovative approach to UK property financing, addressing the unique needs of international buyers looking to finance their investments. We offer two asset-based loan options: buy-to-let and equity release, which you can apply for entirely online. 

With our digital-first platform, we provide fast approvals within 24 hours, loan processing within 5 days, and funding in as little as 10 days. With our client-centred approach, we provide personalised support and expert guidance to help our clients navigate UK property financing. Contact us today for advice on which loan type is best for you.