A Short Beginner’s Guide To Taking a Loan

Emergencies happen – as do unplanned retail opportunities – and when the unexpected does happen we may be in need of ready cash that we simply do not have. This is when a loan can come in handy. When you need £1,000 or even a larger sum then that loan can mean the difference between dealing with a situation that is causing you stress – or simply seizing the opportunity to add to your enjoyment by purchasing that life-enhancing asset.

So what exactly is a loan?

A loan is, in its simplest form a line of credit (or cash) that is provided to you by a financial institution or another lender. It requires repayment over a set period, with interest charges being levied.

There is a myriad of different types of loans available to consumers, however, there are two broad categories of loans – secured and unsecured. A secured loan is borrowing against an asset that you own. If you default on your loan repayments then the lender can sell that asset to recoup their loan amount. An unsecured loan is made in the absence of such an asset – and the interest charges are usually much higher due to the risk that the loan provider takes on. See here for Rapid Bridging.

How does a loan work?

If you are in need of a cash injection you will need to apply to the financial institution or lender of your choice. A broker can also negotiate a loan on your behalf. The loan process can be handled telephonically, over the Internet, or in person. Your banking institution is usually the first stop when you want to take out a loan.

Once you have been approved for your loan amount your bank account will be credited with the cash that you have requested. Then, typically you will be expected to ‘service’ that loan at monthly intervals. Until finally you have dealt with the debt. Miss a payment and you will be charged a penalty – and your interest rate will go up – the outstanding amount will be added to the next payment that is due.


Find out what will occur if you cannot repay your loan.

What can you use the money to buy?

You are usually free to use that money in any way that you see fit – however, there are certain types of loans that are designed with specific purchases in mind – for instance a car loan. Mortgages are another special case – they are designed to assist you when you want to purchase a property. Both of these are granted due to the fact that the originator of the loan has an asset that they can sell off should you default on the payments related to the loan.

Getting a loan – pluses, and minuses.


Easy access to money for long-term repayment.
Fixed interest rates (helps with financial planning).
Large amounts can be sourced (usually up to around £50,000).
Loans can be granted in as little as two days.


Payback the money early and you will incur penalties.
Your assets are your security.
Inflexible payment schedules.
A good credit score is required to both get the loan and get preferential rates.

How long is the repayment period?

The repayment period is usually an agreement between yourself and the granter of the loan, but it can vary from one to seven years, depending on the type of loan that you choose. This is usually the case for an unsecured loan – secured loan periods can be up to 10 years or more.

Remember – the longer the loan repayment period the more expensive it is going to be in real-world terms. Those interest charges rack up. Your monthly repayments also put you under budgetary pressure so you need to strike that fine balance between ready access to cash and foregoing some of the luxuries that you would otherwise enjoy each month.

How much cash can you access?

You can usually access between £1,000 and £25,000. But it does depend on the type of loan that you will be taking.

Small amounts will require quicker payment – usually between one and three years. A large loan can take up to between three and 35 years to pay off (but can be structured for quicker payment).

Where do I get a loan?

Your personal financial institution should be your first port-of-call. However, aside from banks, there are other sources of finance in the U.K. These include:

  • Building societies,
  • Charities,
  • Peer-to-peer websites,
  • Credit unions,
  • The government,
  • Supermarket groups,
  • Specialist lenders
  • The Post Office.