If you looking into the world of credit and loans, you may be surprised at the different types of credit that can be extended to you, and that credit is extended in the form of a loan. However, there are many different types of loans.

Loans Fall Into Two Different Categories

In discussing the various types of loans or credit that can be extended to us as borrowers, it can be simplified down to two main categories:

As you can see and imagine, secured loans are less of a risk to lenders. Borrowers are more likely to repay the loan due to the risk of losing their car, house, or whatever is pledged or used to secure the loan.

Unsecured credit or loans are much more of a risk to lenders, and as such, usually carry a higher interest rate.

Remember the higher the risk to the lender, the higher the interest rate can be.

High risk loan = higher interest rate.

Various Types of Loans

As we mentioned, loans fall into two (2) categories, secured and unsecured.

Here are a few examples of both:

Secured Loans

Unsecured Loans

As to why we would seek out a loan, the reason is obvious, we do not have the cash on hand to make the purchase we wish to make.

In the example of buying a car or a property, we rarely have the cash at hand to pay for these; so we take out a loan.

Credit cards are a good way to make purchases without carrying around a lot of cash, and they are the only way to make purchases on the Internet. Credit and or debit cards.

Personal loans are a way to consolidate other accounts, or to make purchased, once again as we do not have the cash to do so.

Lines of credit or overdrafts are a way to bridge the gap between money we will have in a few days or weeks, and money we need now.

If you have any questions related to loans in the UK or any UK debt question, just click here.

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