An unsecured loan, or a personal loan, is a sum borrowed against your personal income, which consists of your salary and any other earnings you incur.
Unsecured loans differ from secured loans in that there is no need for the borrower to offer up an asset - such as a house or a car - as security. As a result, they are often seen by financial experts as the less risky option for financial consumers, as your home will not be at immediate risk if you default on your unsecured loan repayments.
Should I choose an unsecured loan over a secured loan?
Whether you should choose an unsecured loan over a secured loan depends on your financial circumstances. For instance, if you have a good credit rating, taking out an unsecured loan will be a quicker and safer option than a secured loan.
In addition, if you're hoping to borrow a relatively small sum - perhaps for a minor home renovation, a holiday or student finance - unsecured loans could be more appropriate, as they can be repaid at a faster rate.
On the other hand, if your credit history is poor, you could find it much harder to get an unsecured loan. What's more, an unsecured loan might be a safer option for you but it represents a riskier venture for your lender - resultantly, you'll have less flexibility in changing your repayment plan.
It's best to weigh up the advantages and disadvantages of secured loans and unsecured loans before making a decision on which is right for you. Find out more by visiting the FSA's Money Made Clear website which s packed with information to help you decide whether an unsecured loan is right for you.