Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

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  • Breaking down the different types of loans

    There are many different types of loans available to those looking to borrow. It can be overwhelming, and it can be hard to know where to start. Your individual situation – how much you need to borrow, for how long, and more – will dictate what type of loan is best suited to you.  

    At Oakam we believe that borrowing should help to alleviate your stress, rather than add to it, so we want to help you better understand the different types of loans out there.  

    Short-term loans vs payday loans 

    There are a number of different types of short-term loans available, for example doorstep loanspayday loanssame day loans, and bad credit loans. These are typically loans of a smaller amount of money, that is to be repaid over a short period of time (usually less than 12 months).  

    Essentially, these loans are fairly similar, but there are a few key differences that set them apart: 

    • Doorstep loan repayments are collected by a lender who comes to your home on each repayment date; 
    • Payday loans are set up to be repaid, usually in a single payment, as your monthly salary or wages come into your account;  
    • same day loan means you’ll receive the money in your account on the same day that your application is approved;  
    • Bad credit loans help those with a bad or less than perfect credit score get on to the credit ladder. They also apply to people with little or no credit history, because they’ve never borrowed in the past or because they’re new to the country.  

    While a payday loan is a type of short-term loan, the main difference between the two is in the repayment process. With a typical short-term loan, you repay it over a period of up to 12 months, whereas a payday loan is usually repaid within a month or two, and in bigger instalments.  

    Secured vs unsecured loans 

    All loans fit into two categories: secured and unsecured 

    Secured loans are borrowed and secured against an asset that acts as collateral in case you can no longer make your payments.  For example, a mortgage is a loan secured against the value of your property, or a vehicle loan is secured against the vehicle itself.  

    Unsecured loans are less complicated as they are simply money borrowed from a bank or lender, and repaid over regular instalments. Interest rates are typically higher on unsecured loans, and late or missed payment charges can sometimes incur as a result of there being no collateral to secure the loan against.  

    Oakam offers unsecured loans. We don’t ask for collateral, and we don’t charge fees or late payment penalties on any of our loan products. We can do this because of the initial assessments we make when lending to our customers. We use alternative data to assess a loan application, and this helps us ensure our loans are affordable and fair.  

    Things to consider when applying for a loan 

    With so much choice and so much overlap between the loan types, it could be easy to take on a loan that isn’t quite right for you.  For example, if you lack a consistent income stream, a payday loan – while it might tide you over between pay checks – may not be top of your list. Equally, if you move around a lot or have no permanent base, a doorstep loan is unlikely to be for you.  

    Knowing what is or isn’t suited to your individual circumstance is essential before applying for a loan, as missed or late repayments can cause serious money problems and can impact your ability to borrow in the future. It’s worth shopping around once you’ve decided what type of loan you’re looking for.  Comparing interest rates or repayment instalment sizes is worth doing, as these are things that will dictate whether you’re getting a good deal, and whether you’ll be able to meet your repayments for the loan.  Every situation is unique, so even if you’ve borrowed in the past and are looking to do so again, your original lender may not be suitable any longer. It’s a significant decision to take on a loan, so it pays to take things a little slower and to be sure of your final choices.  

    Oakam loans 

    Oakam loans are short-term, often same day, and can be accessible to applicants with bad or slim credit profiles.  Where we differ from payday or doorstep loans is that you can repay your loan over a set period that is not tied to your monthly income schedule, and your loan is managed online via the Oakam app, rather than with an agent coming to your home. An Oakam loan uses alternative data to get to know our customers as real people, rather than financial profiles alone, to increase the possibility of approval and to provide you with fast cash. We also recognise and reward reliable borrowers, so that as you continue to repay your loan on time, you gain access to bigger and more favourable loans. 

    For more information on Oakam loans, you can find a whole host of useful information on how our loans work here. Deciding what type of loan is right for you shouldn’t be a strain. However, with so much information available on loans – not all of it helpful – we understand it can be a minefield to navigate at times. This is by no means a comprehensive guide to all the types of loans that are available, but we hope that it can help you clear away some of the confusion and begin your lending journey.  


    Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. To get debt advice information, we advise seeking independent advice from an impartial service like Citizens Advice or a qualified Financial Advisor.