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The world of loans can leave you feeling pretty daft if you don't know what everyone’s talking about. Fear not – I have much wisdom to impart, helping you to avoid feeling like a fool this year. Allow me to unlock the mysteries of the loan.

Reasons to take out a loan can vary, with recent statistics revealing that the top two were to sort a short-term lack of cash (12%), followed by subsistence (10%).  

The theory of a loan is pretty simple – you’re lent money with certain conditions to pay it back. These conditions are usually the amount of interest you’ll pay and the period of time you have to pay it back. Unfortunately, that's where the simplicity ends. With such a wide range of different loans you can opt for, it’s easy to get bamboozled. 

From short-term solutions to business loans, I can enlighten you. Here’s a round-up of some of the more common loans available:

Short-term loans

Short-term loans allow you to borrow an amount of money for a short period of time – usually over a short period of time and usually up to a maximum of 12 months. The loan will be paid back either as a one-off payment or in multiple instalments.

Personal loans

Personal loans come in all shapes and sizes and can be for whatever you desire, whether that’s a holiday, a car or an ornate elephant saddle. Personal loans are often known as unsecured loans, as you don’t need to use anything as security against it (a house or car for example).

You can usually borrow up to £25,000 and the interest you pay will be dependent on the amount you’re lending, the term of the loan and your credit rating. With any type of loan, your credit rating will be looked at – so it’s always wise to check it out before you start applying. My Credit Reports section provides much wisdom on credit reports and how to improve them.

Secured loans

A secured loan allows you to borrow money against something you own– usually your house. If you don’t pay up, the lender has the right to seize the asset you put up as security – so it’s very good karma to make sure you’re able to make your payments before committing to anything.

You can usually borrow a lot more with secured loans than you’d be able to with an unsecured loan – up to around £100,000. Despite the obvious risks, a secured loan can be a good way to get a bit of extra cash if you’re asset heavy in your personal finances.

Business loans

Business loans can be a wise way for start-ups to get their feet off the ground, allowing them to invest in workspace or manpower. However small or large the business, there are always situations where you need a bit of extra cash.

A business loan is designed to allow businesses to fund expenses such as start-up costs and money needed for growth. Like a personal loan, this will be for a certain amount of money, which has to be paid back over a set period of time, with a set interest rate and monthly payments.  

Business loans will usually come with stricter criteria than personal loans, as more money will be lent. Again, your personal credit rating will be looked at, as well as the financial situation, business plan and accounts of your business.  

With so many options out there, the world of loans can feel like a bit of a maze – but it really doesn’t have to be. I’m here to lead you out of the confusatorium and into the land of enlightenment. Visit my Wisdom Section for more straightforward and simple advice.    

Peace and loans,

The G