You’re not alone if you think you’re the only person looking for a loan. Tens of thousands of people across the United Kingdom are looking for various types of loans to finance their lives. People primarily borrow because loans can help them meet important life objectives they couldn’t afford previously, such as purchasing a home or attending college.
According to research by Statista, consumer lending in the UK was slightly above 27 billion GBP as of December 2022. This is substantially higher than the steep decline experienced in April 2020 due to the coronavirus pandemic. Therefore, the UK loan market is growing tremendously, indicating that the economy is recovering.
In this article, we’ve prepared various loan statistics to help you evaluate the loan market in the country and choose wisely. So, continue reading to discover more about this market.
Why Do You Need to Take a Loan?
You can take a loan for several reasons. For example, you may want to take your family out on a special holiday or make a large purchase, like a house or a car.
You can also take a loan if you intend to consolidate all your loans into one to make it easier to manage and reduce the interest you pay monthly. Other reasons for taking a loan include starting a business, undertaking home improvement projects, making a large purchase, studying, and more.
If you’re looking for a reliable lender where you can receive your preferred loan even when you may be struggling with your credit score, you should consider Everyday Loans. It’s a direct lender offering loans ranging between £1,000 and £15,000 to UK residents for a minimum of 18 to 60 months.
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5 Types of Loans in the UK
It’s essential to weigh the benefits and risks of every loan to determine the best choice for your financial needs. Therefore, let’s discuss the major types of loans you can consider in the UK and what you need to know about them.
1. Personal (unsecured) loans
Personal loans allow the borrower to receive small amounts of money, like £1,000 – although this amount can be higher. You can use this loan to pay for anything you want, unlike mortgage and auto loans, that have a specific purpose. For example, you can use personal loans for home improvement projects, emergency expenses, or special occasions like weddings.
These loans are unsecured, meaning you won’t need to guarantee the loan with collateral. Collateral refers to a case where the lender can take your assets if you fail to repay the loan. Depending on the financial institution, personal loans may have variable or fixed interest rates and a repayment period that ranges from months to years.
Although personal loans have lower risks than other loan types, you might need a higher credit score to receive a reasonable interest rate.
2. Secured loans
These loans often require the borrower to use an asset, like a home or a car, as collateral, meaning they might lose their assets if they feel to keep up with the installments. Fortunately, secured loans are perfect for those confident they can adhere to their repayment schedule. Since the collateral reduces the borrower’s risk, they may receive higher loan amounts or better rates with a secured loan, even with a low credit score.
3. Car finance loans
Also known as auto loans, car finance loans allow you to borrow the total cost of the car you want minus the down payment. Therefore, your vehicle acts as collateral, and the lender can repossess it if you fail to make the agreed payments. Most car finance loans in the UK vary between 36 and 72 months. However, longer repayment periods are becoming quite popular as vehicle prices increase.
4. Mortgage loans
Mortgage loans are similar to auto loans in that they cover your home’s purchase price minus the down payment. Similarly, the lender can repossess the property if you miss repayments because the property is the collateral.
Most mortgages have fixed interest rates and repayment periods of ten, twenty, or thirty years. The interest rate remains unchanged throughout the loan period, or the lender can adjust it annually for inflation. Notably, the UK has more than 11.1 million mortgages, according to a report by Finder.
5. Debt consolidation loans
A debt consolidation loan allows you to combine all your existing loans into a single manageable debt. If you want to determine the amount you’d save by consolidating your loans, it would be best to calculate the total amount for all the loans and obtain a loan for a similar amount.
Consolidating your loans into a single loan can save the amount of interest you pay monthly, and it’s easier to make a single payment rather than paying different amounts to various lenders.
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Recent Trends in the UK Loan Market
Consumer lending via credit cards has increased substantially, with UK citizens borrowing billions of pounds. The number of credit cards hit an all-time high in February 2020 and reduced slightly in the coming months. But there were still more than 60 million credit cards in the country by the end of 2021. More so, UK people spend an average of 51 GBP every time they use their credit cards, considerably lower than most credit cards’ limits.
The value of consumer credit in the UK is significantly lower than outstanding mortgage lending. And outstanding consumer credit has been decreasing since 2018, while on the other hand, mortgage lending has been increasing steadily.
Furthermore, the gross mortgage lending was valued at more than 89 million GBP in the second quarter of 2021. This figure was double the amount in the second quarter of 2020 when mortgage lending dropped due to the uncertainty brought on by the coronavirus pandemic.
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What do I need to know about the loan market in the UK? We hope you now have your answer. Loans help you to finance your lives and accomplish more than you would without them. They can help you purchase property, study, form a business, organize a special occasion, and more.
However, obtaining a loan is advisable if you can afford it. You may encounter serious financial problems if you take a loan and fail to repay it. Some loans can reach staggering interests if left unpaid for a long time, while others can lead to your property being repossessed by the lender. Therefore, choosing the correct loan type for your needs and obtaining an amount you will be comfortable paying would be best.