The short answer is – it depends on your financial situation and your ability to repay the loan now and in the future. Also, your credit history and whether you own a property could affect how much that loan will cost you overall.
Making sure you can afford loan repayments means managing your money well, keeping on top of your banking and budgeting for the additional expense of repayments every month. Remember, a loan must be repaid, with interest. If you’re already struggling with debt repayments, you may be eligible for a debt management plan instead of a loan, to help you meet those payments.
Having said that, if your finances are manageable and you can afford the repayments, you may be able to choose from more than one type of loan.
What kind of loan would suit my situation?
There are various types of loan, but here are four common types:
An unsecured loan
A secured loan (like a mortgage)
A debt consolidation loan
A remortgage to consolidate debts
Other forms of credit
Credit cards and overdrafts are similar to loans because they’re a form of borrowing – but you could have more control over the amount of interest you’ll pay in total, if you find you’re able to pay it back sooner.
Some credit cards and overdrafts are expensive, whereas some don’t charge any interest at all. The deal you get on the interest really depends on the credit card or overdraft you choose, as well as your credit history.
If you have debts that you want to consolidate, a debt consolidation loan could be an option – or if you own a property, you might be able to remortgage and use that money to pay off all your debts. However, adding debt to your mortgage can raise your mortgage payments and your home could be at risk if you fall into arrears.
Having said that, the interest rate on a mortgage could be far lower than on most forms of unsecured debt. Just remember that you could still pay more in total if you arrange to repay a debt more slowly.
One example of a high-interest loan is the ‘pay day’ loan, which allows you to borrow over a short period, but charges interest rates that look very high when they show what it would cost over a year.
Choosing the right loan
Taking out a loan is something that should be carefully considered before doing it. Perhaps if you have debts, you may decide that a loan isn’t the right solution just now. Or you might decide you’re happy with your finances and a loan is right for you. Just remember to always look at your options before deciding on a loan.