There are two ways to get a personal loan in the UK. You can get a loan that doesn't require you to put up any collateral or you can get a loan that does. Which one is best?
You get an unsecured loan based on your good name and your credit score. Most of the time, the interest rate on an unsecured loan is lower than on a secured loan. This is because the lender is taking on more risk with an unsecured loan. If you can't pay back the loan for some reason and the lending company doesn't get any money back. But you could lose your good name and your credit rating.
On the other hand, you can get a secured load if you put up some assets. With a secured loan, you can usually get more money at a lower interest rate and a longer time to pay it back than with an unsecured loan. This is because you can back up your loan with some assets. The lending company likes this type of loan because if you can't make payments, they can use your assets as a way to get their money back. Because they are taking on less risk, they are able to give you better loans with better rates.
A mortgage might remind you of a secured loan. When you borrow money from a bank to buy a house, the bank uses the house as security for the loan. The bank can take your home if you don't pay your mortgage.
Or, you can think of a secured loan like a pawn shop that gives you the money you need but lets you keep the things you put up as collateral.
So which one should you choose? It's hard to decide what to do. Most of the time, you'll get a better rate with a secured loan, so you might prefer that.
But maybe you don't have any assets to use, or you don't want to risk having some assets taken away if you can't make payments. In this situation, you might not mind paying a little more to get an unsecured loan.
When you're making a plan for your money, both unsecured and secured loans are good options. You can use them to pay off your bills, get the things you need and want, or make your house investments work for you. And because you can choose between unsecured and secured loans, you have full control over your financial future.
