To consolidate existing debt which has become unmanageable. Often a loan can bring all these debts together, reducing the monthly payments and making the debt more manageable.
	To buy something up front and then pay for it afterwards, such as home improvements, cars, weddings or holidays.

What is a Loan?

There are two basic types of loans available to customers.

(i) Unsecured Loans

Generally the amount available to borrow on an unsecured loan is no more than £15,000 and repayment is usually required in a shorter time than secured loans.

With an unsecured loan, the borrower does not have to own any property that can be used as collateral against the loan, and is therefore based on the borrower’s obligation to pay the loan back. Unsecured loans are not usually available to clients with low credit ratings.

Often the borrower is charged a higher repayment interest for an unsecured loan because the lender is taking more of a risk in underwriting the loan.

Unsecured loans are not regulated by the Customer Credit Act.


(ii) Secured Loans

A secured loan gives a greater level of security to the lender of money as it provides them with some sort of security – a second charge on a property.

You are more likely to be able to get agreement for a secured loan up to £100,000 with better repayment terms and repayment over a longer time.

Office of Fair Trading (OFT)

The Office of Fair Trading ensures that you are operating your business ethically. Its main focus is on advertising, both traditional and new media, and on ensuring that the principles of the Consumer Credit Act are adhered to.

The Office of Fair Trading also specifies that the way in which a secured loan is processed this is dependant upon its size.

Regulated loans

All secured loans below £25,000 are regulated by the Consumer Credit Act 1974.

For regulated loans, there is a strict time and contact procedure that must be adhered to when dealing with a customer. When the documentation has been presented to the customer, no further contact can be initiated with the customer for a set period of time, although it is permissible to respond to a specific request made by the applicant(s).

Unregulated Loans

Any loans over about £25,000 are presently unregulated, and there are no constraints of timing or contact.

The OFT plans to change this regulation soon, to make all secured loans regulated loans.

Loan Sizes

	Regulated loans are up to a maximum of £25,000.
	Unregulated loans are loans from £25,000 to £100,000.
	Anything over £100,000 would be considered as a mortgage.