Secured loans

In this model, you provide your lender with a security. If you are unable to repay the loan and interest as agreed, your finance partner can recover its loss by way of securities.

For example, consider a mortgage. It is a loan that is secured by a charge on the property. The lender gives you the money to buy the house. At the same time, it encumbers your house with a mortgage in its favour as a security. This means if you fail to meet your mortgage repayments over a period of time, your lender can use your house to recover the loan money and other relevant charges.

Unsecured loans

In the case of unsecured loans, your lender does not ask for any additional security. It assumes that you can repay the loan as agreed or applies a higher rate of interest to safeguard itself against the greater risk of failure. Take a holiday loan. For example, your bank may be willing to give you a loan for your holiday because it has faith in your good credit history and because you normally earn enough to keep up the repayments.