Borrowing is a very common need of every one of us; we usually depend upon the finance from an outside source rather than trying to get it from internal sources like friends and relatives. The popular outside sources to get the required amount are regular banks, financial institutions, societies, credit unions, Govt. departments and direct lenders. The people love to borrow from outside sources because of: privacy, no obligation, freedom to choose the repayment, a possibility of extending the repayment, no limit of amount etc. When the borrowing options are explored, two loan types come across the most – personal loan and mortgage loan. What is the difference between both loans? Which loan should be taken? How to get the best borrowing deal?

Personal Loan – An Overview:

A personal loan is an unsecured loan designed to help you meet emergency financial need. You don’t require to pledge collateral or security or guarantor.  The lender provides the required cash help with usage freedom. The funds can be used to manage the travel cost, wedding expenses, due bills, relocating, small item purchase, medical emergency, debt consolidation, home renovation and others. The borrower pays the borrowed amount plus interest. Some direct lenders apply some fees also like upfront fee, processing fee, funds transfer fee etc but some direct lenders offer no fee loans also. There are different types of personal loans, so, you can choose the best suitable format:

Payday loan:  It is s high-cost debt for short-term given against next salary cheque. Lenders often charge very high-interest rate because it is a short-term small amount debt; the repayment period is 28 days. The salaried borrower doesn’t mind in paying extra cost because of getting the required financial help instantly. It doesn’t need complex documentation because the salary is taken as a guarantee against the credited amount. The instant decision- same day- wages loan is designed with a unique concept– “Provide the financial help when the borrower needs”.

Doorstep loan – Under this lending format, the cash is provided at a doorstep. The easy application process makes the complete process lightning fast. Even the first time borrower doesn’t face any complication. Approval takes just a few minutes. The agent or representative of lender visits your place to verify the served credentials as well as to assess affordability. On being satisfied, the cash is handover immediately. The doorstep loan is often made available with weekly instalment clause.

Instalment Loan – It is a short-term loan for 12 months. The borrower repays the total debt through 12 monthly equal amount instalments. The borrowed money may be more than in case of a payday loan or doorstep cash loan. The agreed loan amount is transferred into the referred bank account within one working day. The instalment loan is available at lower APR comparative to a payday loan.

Loan from the credit union – if you ever need short-term financial help, approach the Credit unions. The members of credit union pool their savings for financially helping a member. Interest rate varies but it is always within the legal limit.

The other popular personal loan is overdraft loan but it is made available to meet out just the low funds’ requirements against the saving or earnings. Some Govt. banks offer this loan facility at 0% interest rate also but for a certain period. Credit score plays a key role to establish credibility.

Mortgage Loan – An Overview:

A mortgage loan is taken to buy land or property – residential or commercial. The standard longest repayment period is 25 years but it can be shorter and longer as per borrower’s repaying capability. The debt is secured against the market value of purchased property until the entire loan amount is paid off. If the borrower fails to repay within the agreed period, the lender has right to repossess the mortgaged property and to sell it to recover the credited amount. Lenders check your income proof and credit score report to assess the repayment capability. You don’t need to pose someone as guarantor. It involves little documentation but the leading direct lenders provide online support by their experienced mortgaged lending professionals. The documentation may need some expenses also. A mortgaged loan is easily available at banks or societies because it is secured lending. You can hire a mortgage broker or can contact with an independent financial adviser to get the paid help for comparing different options. The numbers of free to use online mortgage payments calculators help you to judge how much you can borrow and for how long you should borrow.

A Comparative Overview of Mortgage and Personal Loans:

Almost 11.1 million mortgages exist in the UK mortgage market that is worth more than £1.3 trillion. At present, the UK is the biggest in Europe countries in terms of mortgage loans lent and outstanding mortgage loans. In 2017, 18 mortgaged properties were repossessed each day. The property prices have risen about 4.5% in 2017; it makes the lenders better hope for getting their money back. On the other side, personal loans are being paid at a better rate. On Feb 2018, almost £1.578 trillion was owned by individuals. Each UK adult holds £30,537 average debt. During the 12 months period up to February 2018, the total interest payment was more than £50 billion.

Concluding Note:

Getting any type of loan, mortgage loan or unsecured personal loan, in the UK is easy but the borrower needs to be cautious about the repayment liability for the entire repayment period while keeping in mind all the possible odds like illness, job loss etc.

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