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Loans: What Are Your Options

There are many different types of loan available, and choosing between them can be somewhat complex. Here, we have created a guideline to help you to understand some of the most common types of loan. By having a better understanding of the various types of loan, you can make the correct choices when taking out a loan, choosing loans with the best terms and rates open to you.


Personal Loan

A personal loan is intended for use in the short term. This means they usually have terms between two and five years. Now, this might seem like a relatively long time to you, but when you compare it to other types of borrowing, such as mortgage loans, then you can very much appreciate the short-term nature of a personal loan. With the exception of payday loans (which you should steer clear of if you can) and bridging loans, personal loans have the shortest terms


Personal loans are also relatively small. The average loan is between £7,500 and £15,000. They also have a relatively reasonable interest rate of around 4.9%.


Within the realm of personal loans, we also classify top-up loans. These are loans that you take out on top of the personal loan, but only after you have paid off a relative amount. For instance, if you take out a personal loan for £15,000 and you repay £1500 in a year, you might be able to apply for a top-up loan of £1500 – you can only top the loan up to the maximum amount of personal lending offered by the lender.



A mortgage is a type of loan that is secured against a property. When you borrow money from the bank for a mortgage, they let you have it, but your property is put up as collateral. So, if you default on the loan, they can take your house. Mortgages are generally long-term loans. The average term is 25 years.


You should always try to get a loan with the best interest rate. The interest rate is determined by several variables:


  1. The lender: different lenders offer different interest rates (so shop around)
  2. How much you earn: the more you earn, the more you can borrow
  3. Your credit rating: the better your rating the more you can borrow and the lower the interest rate
  4. The current market: mortgage lenders lend money according to the current market. In good years, you’ll get a better rate than in bad years.


Bridging Loan

A bridging loan is similar to a mortgage in that it is used to pay for a property. However, bridging finance is somewhat different because it is borrowed over a very short-term basis. The term is usually between a week and a month. It is called bridging finance because it bridges the gap between the sale of one property and the purchase of another.


For instance, if you're waiting for your mortgage to finalise, but you have to pay for the property, you use a bridging gap to ‘bridge’ the gap. You repay the bridging loan once your mortgage is in place. This may sound very risky, but you need to provide the bridging lender with an ‘agreement in principle’ from you bank.


If you would like further information about bridging finance, then please visit May Fair Bridging