Personal loans differ from secured loans in that they are issued on the basis of merits.
With a secured loan, security (aka collateral) must be provided by the applicant as ‘insurance’ for the lender against the funds issued. If the money is not repaid in full and on time, the lender has the legal right to repossess and sell the borrower’s assets, in order to recoup their losses.
Meanwhile, personal loan agreements are based more on trust than assets. The applicant does not need to provide any form of security, eliminating the potential risk of repossession. Instead, the credit status, income level and general financial position will be used to assess their eligibility and trustworthiness.
Even so, a personal loan can still result in the forfeiture of assets if the borrower defaults on their loan.
But what are the different types of personal loans available, and what can they be used for? If you are looking to borrow money without putting any specific assets on the line, which is the best personal loan type for your requirements?
Standard Unsecured Personal Loans
Most banks and lenders will offer standard unsecured personal loans, on something of a no-questions-asked-basis. Or to put it another way, you will not need to specify exactly what you intend to use the money for, and the facility is fairly simple to arrange. Your credit rating and income level will determine how much you can borrow, and will also influence the rate of interest on your loan.
Home Improvement Loan
This is a specialist type of unsecured personal loan, issued exclusively for home improvement or modifications. Home improvement loans are typically issued exclusively to homeowners, but the applicant’s property is not used as direct security for the loan. Homeowners can often gain access to more competitive personal loans than those who do not own their own homes.