An unsecured loan (or a personal loan) you might get from your bank isn’t attached to your home or any other asset. Because there’s no asset for the bank to claim if you can’t repay them, unsecured loans are typically considered higher risk. You’ll typically need to have a good credit score to be approved for one as this reassures lenders that you’re likely to pay them back.
Just as with a secured loan, when you take out an unsecured loan you’ll agree to certain terms for repayment, including an interest rate and how long you’ll have to pay back the debt. Credit cards are another type of unsecured credit – they’re also known as revolving credit, meaning you borrow and repay money each month.
A common reason for taking out a secured loan (second-charge mortgage) is that interest rates can be lower than unsecured loans (depending on the lender and your circumstances). If you’re in a secure financial position and will be able to make repayments, a second-charge loan could potentially save you money on interest. You are also likely to be able to borrow more for big investments and large-scale projects.