Personal Loans in the UK (and the world) financial market can be broadly divided into two categories: unsecured personal loans and secured personal loans. While secured loans seem to be the quintessential loan for the UK homeowners, unsecured loans are the only real option for the tenants, and homeowners who do not want to put their houses as collateral.

There are pros and cons to both kinds of personal loans. With secured loans, the advantages that the borrower gets are a bigger borrowing amount, a longer repayment term, and possible flexibility in installments.

The amount one can borrow with secured personal loans is typically £75,000. However, this amount happens to be a flexible amount. The equity in the collateral determines what one can borrow. If the equity is more then the standardised amount, the borrower may get a bigger amount. The term of repayment is characteristically twenty-five years. That can go up to thirty in some cases.

There are also disadvantages with this loan though. One crucial aspect is that the lender in the case of a default can repossess the collateral. Another hassle is the documentation process. The paperwork in the case of a secured loan can be quite a tedious process.

Unsecured loans are limited in the sense that the amount the loan taker can borrow has a cap of £25,000. Also, the interest rates are relatively higher in unsecured loans. This is due to the fact that the collateral that is present in case of secured loans is not there with the unsecured type. The lenders face a greater risk here. There is a danger of not getting the money back, if the borrower defaults on the repayments. The higher interest rates are a compensation for that.

There are also advantages though. One of the biggest benefits is the absence of collateral. If the loan taker inadvertently defaults, he will not lose his collateral. Also, the documentation that is there with secured loans is absent in the case of an unsecured loan.