Types of loans and what they mean
A personal loan can help you get moving on your next big project. Whether it’s refitting your kitchen or buying a new car, there are a lot of different types to choose from. Check out our jargon-busting guide and get to grips with the types of bank loans out there.
What is a bank loan?
A bank loan, or personal loan, is an agreement between you and a bank, building society or other lender. They will agree to lend you a certain amount of money upfront, and you will commit to paying that loan back according to a schedule.
Typically, you will be paying an amount of interest on top of the money that you borrow. How much that is will depend on 3 things:
- The amount that you are borrowing
- The term or duration of the loan
- The interest rate
How many different types of bank loan are there?
There are many different loans available, each with their own names and lending conditions, but most of them fall under the umbrella of personal loans and are the type of loan you’re hear about most often. Personal loans come in lots of different shapes and sizes, some of the most common ones are below.
An unsecured personal loan doesn’t need an asset to be secured against. Instead, it's agreed based on things like your credit score or salary. These factors influence how the lender decides how much you can borrow, and at what cost. Tesco Bank personal loans are unsecured loans.
This is a personal loan of a set amount of money that has been secured against an asset. This asset could be a home, car or something similar. If you don’t keep up repayments on a secured loan, the bank may use your assets to make up the shortfall.
Learn more about the difference between secured and unsecured loans.
These are short term loans offering quick access to money needed ahead of your salary or wages being paid. Payday loans normally have a higher interest rate and are to be paid off within a month.
Debt consolidation loans
A debt consolidation loan is a type of personal loan that can be used to pay off a number of different debts. That way, there's just one monthly payment to remember and one agreed period and cost for repayment.
Bad credit loans
Bad and adverse credit loans are for people who have a poor credit history. They can be helpful when you aren’t eligible for an unsecured personal loan and depending on your personal circumstances they could be used as a way to help build your rating back up again.
There are things you can do that could improve your credit score. Find out more in our credit rating guide.
There are a few different finance options available when you buy a car, including a personal loan from a bank. Other possibilities include car finance or hire purchase loans available from car brokers or dealers.
Other types of loans
There are a few other important ways you can borrow money from a bank, but these loans have a set of rules of their own.
For example, when you take out a mortgage you are borrowing a large sum of money over a long period of time. It's a secured loan, but one that is specific to buying a home. A credit card is another type of loan in effect, where you can borrow repeatedly up to an agreed limit.
The content on this page aims to offer an informative introduction to the subject matter but does not constitute expert financial advice specific to your own situation. All facts and figures were correct at time of publication and were compiled using a range of sources.