Loan types vary enormously, but generally, they can be divided into two major types: secured and unsecured. A secured loan is credit that is secured against an asset, such as your house - indeed, a mortgage is a type of secured loan. Offering the lender collateral lowers the risk they are taking by lending money to you. It provides them with leverage in the event that you should default on your repayments. In return, lenders tend to offer secured loans at more favourable interest rates and more flexible loan terms than unsecured loans.
Unsecured loans are not secured against any asset, so in order to assess the risk you present to potential lenders your history of borrowing will be considered. If you have a good credit rating, unsecured loans can be an affordable way to borrow, and there are many options to suit all budgets. However, if you’re a homeowner and your credit rating is less than perfect you may wish to consider a secured loan, as this may be your best option to keep your repayments low and your total loan cost as cheap as possible.
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