Unsecured Loan

A one-sided contract: they provide the cash… you just take it!

An unsecured loan comes at a higher premium than secured loans because the bank is taking a higher risk by lending to you (you might be less inclined to be responsible with the money when your house isn't riding on it!) But for lower borrowing amounts, it's a negligible difference and simpler to arrange too.

No prizes for guessing that an unsecured loan is the opposite of a secured loan. Despite the fact that most loans are unsecured, they cost more in interest than secured loans, and there's a good reason for it.

A secured loan means the loan is "secured" against something of value. A pawnbroker, for example, will lend you money secured against a piece of jewellery; which you can reclaim if you bring the money back. A bank will similarly lend you money secured (usually) against your house. Obviously, banks don't take the security and lock it up like a pawnbroker, but you get a good rate of interest because you have shown the bank that you own something which will cover the cost of the loan should you happen to default on it (we wouldn't wish that on anyone, but that's the fact).

An unsecured loan is a loan you have taken out where you haven't provided the lender with anything they can take if you default. That doesn't mean you don't have anything of value (and if it all goes wrong, the bailiffs will be round to prove it!), it means the lender has not required proof of property, and such a property has not been specified in any contract as being applicable collateral against the loan. At lower amounts of money, almost all loans are unsecured (and therefore attract a slightly higher rate of interest) - not least of all because the banks don't want to lower their interest rates yet further on smaller amounts of money. Indeed, if you asked for a secured loan on £1000, you'd probably get laughed at. Below £7,000 or so, your best bet is to take an unsecured loan and just be aware of the legal difference.