Most of us at some time require a loan and there are many different types to choose from. The challenge is finding the best one to suits your needs.

Loans fall into two categories - unsecured personal loans or secured loans.

Unsecured personal loan

This is a personal loan, available from a bank, building society or other finance company, without security. A lump sum will be loaned in return for agreeing to make regular repayments, usually by bank direct debit. Personal loans of this type are generally offered up to £25,000. Repayments are over a period of time, usually between six months and ten years.

Lenders charge interest, which can be fixed or variable, on the amount borrowed. This interest charge is expressed as an APR (annual percentage rate). The APRs will vary dependent upon the amount of the loan and sometimes the terms. Usually the rate is fixed and remains the same throughout the period of the loan. If it is variable you must be advised of this possibility.

Secured personal loan

A secured personal loan is one in which some of your property, usually your home, is held by the lender as security for the amount you have borrowed. Secured loans usually offer lower interest rates than unsecured ones.

Types of loan

Bank or building society loan or overdraft
A bank or building society can grant you a loan or agree that your account can be overdrawn. The bank may ask for security for a loan, for example, house deeds or an insurance policy. Any security offered may be at risk if you default on a loan.

Mortgage
A mortgage is offered by a building society or bank to buy property. An extra mortgage on the property, called a second mortgage, can be offered, for example, for home improvements. The lender will charge a higher rate of interest on the second mortgage.

Finance Company loan
These are most often offered by department stores, car dealers and electricity and gas companies. The shop or firm arranges a loan for the purchase of a specific, such as a car or a cooker, or paying for goods and services such as double-glazing. These should not be confused with a Hire Purchase agreement. The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover the money owed.

Hire Purchase
Under a hire purchase (HP) agreement you are technically hiring the goods until you pay for them in full. You do not own the goods until the final repayment, which means that you can end the agreement and return the goods at any time. If less than half the total has been paid you may have to find the difference.

Credit cards
These can be used to obtain money from a bank, or buy goods or services. A monthly statement tells you how much you owe and you will be told the minimum amount you must pay that month. You may also have to pay an annual fee. Interest rates can be high.

Charge cards
The difference between a charge card and a credit card is that the amount borrowed on a charge card must be repaid in full at the end of a given period, usually a month. Interest is not charged.

Credit brokers
Credit brokers arrange loans from insurance or finance companies and can make a charge for this. If the broker has not arranged a loan within six months the maximum the broker can charge is £5.

Consolidation loans
These are becoming increasingly popular and are generally arranged through brokers. All your loans are lumped together and you make one monthly repayment.

Shop accounts
Many shops have their own types of credit accounts. These include monthly accounts (where interest will be charged if the amount is not paid off in full at the end of the month) and budget accounts (where you pay a regular amount each month to cover the cost of goods bought throughout the year).

Pawnbrokers
Pawnbrokers lend money against the value of property left with them. They must give a receipt known as a ticket. Pawnbrokers agree to keep the property for at least six months but you can get it back at any time during that period by paying off the loan plus interest.

Credit union
A credit union is a self-help co-operative whose members pool their savings to provide each other with credit at a low interest rate. If a member fails to repay a loan, the credit union can seek repayment through the courts.

Money lenders
Money lenders usually lend small amounts of money at very high rates of interest and should generally be avoided.

Further independent advice on planning for credit and debt is offered by the Financial Services Authority.

• www.moneymadeclear.fsa.gov.uk/guides/get_to_grips/get_to_grips_with_your_money.html
  
  
• If you have problems with repayments you should consult an experienced adviser, for example, at a Citizens Advice Bureau or the Consumer Credit Counselling Service, both of which offer free, impartial advice.
  
  
• www.nacab.org.uk/index.ihtml
  
  
• www.cccs.co.uk/