Chances are that we all have to borrow money at some point in our lives, and certainly if we are looking at buying a property. But borrowing money is instant debt, and once you are in debt you pay extra for the privilege. So if you do have to borrow money, it pays (literally) to make sure you get the best loan deal possible, and to do so you should become familiar with the different types of loans, how they work, and the jargon associated with them. Here, therefore, is a ‘Borrowing Money 101’ primer on what you need to know to make sure you get the best loan deal you can.

Types of private loans:

Secured Loans

Generally speaking, all loans offered to individuals will come in one of two forms – secured or unsecured. Secured loans require the borrower to pledge collateral against the loan, either in part or wholly. Simply put, the borrower must have sufficient assets which, once signed over as security for the loan, the lender has the right to take ownership of in the event of non-payment by the borrower. In some cases the lender may require the borrower to cover the entire amount of the loan in security, but generally speaking secured loans normally only require the borrower to secure a reasonable portion of the loan. Items that are normally accepted as security are property, vehicles and in some cases furniture and the like. The borrower maintains ownership of the items offered as security, and will only be forced to relinquish that ownership if they default on the loan. In essence you’re guaranteeing to pay the loan, either by making the required payments, or by giving up some of your assets if you can’t pay.

Be very careful when taking out a secured loan that you understand all of the conditions and that you are sure you can meet the required repayments.

Unsecured Loans

Unsecured loans are loans that are given by the lender without any need for the borrower to offer up any security. In such cases the lender will have studied carefully the borrower’s credit history and financial circumstances and will be reasonably confident that the borrower has the capacity and the character to repay the loan sufficiently. If the borrower defaults on the repayments, the lender will still have legal recourse against the borrower despite their being no security offered up front for the loan.