What types of personal loans are there?
2.11 – A secured personal loan is one that is backed by your own assets. This is called the ‘collateral’ (something you own of value) and can be claimed and repossessed by your lender in case you’re unable to pay back the loan. Because the bank can call on your assets to be sold in the case of you being unable to repay your loan, there is less risk of defaulting (not repaying your debt) and thus interest rates on secured loans are lower than unsecured. 2.12 -An unsecured personal loan is basically credit that has no direct liability to your own personal assets. As it’s not backed by your own collateral, interest rates are typically higher as there is more risk involved with lending to you. 2.2 – What are the advantages of student loans? Parental backing: As well as unsecured and secured loans, student loans can often have a parental guarantee. Loans backed by your parents typically offer the lowest interest rates, as parents are generally good collateral to call upon. No establishment
