A look at unsecured credit

If you’re looking to borrow a bit of extra money, there are various different types of credit out there. There are basically two different types of credit available: secured and unsecured.

‘Secured’ debts are those that are secured against your home (or, in some cases, other property) – for example, your mortgage. Any money borrowed against your home is classed as a ‘priority debt’, as the consequences of non-repayment could be particularly severe – in the most extreme instance, it could mean losing your home (though this wouldn’t happen immediately).

An ‘unsecured debt’, on the other hand, is any money you borrow on lines of credit such as credit cards and overdrafts, as well as unsecured loans. Although these debts are still important to take care of, the potential consequences of missing payments are generally much less severe – though you could still run up charges, damage your credit rating and even face County Court Judgments (CCJs) in the longer run.

Let’s take a closer look at the most common types of unsecured credit.

Credit/store cards

Credit cards and store cards can be a quick and convenient way of paying for things in shops when you’re out and about. If you have a current account, it’s likely that you’ve been offered a credit card at some point, or at least seen one advertised with your bank, and many shops offer their own store cards to customers.

However, many credit/store cards come with high interest rates, which could mean you end up repaying a lot more overall, due to accruing interest, if you don’t pay off your balance every month.

If you’re struggling to make your credit card repayments, you should get debt advice right away: http://www.debtadvicenow.co.uk/ could help.

Personal loans

Taking out a personal (unsecured) loan could be a suitable idea if you’re looking to make a bigger purchase on credit, such as a new car. Personal loans usually offer some flexibility to the borrower when they’re arranging the loan – as well as how much they want to borrow, they may have quite a lot of choice in terms of how quickly they wish to repay it.

Overdrafts

Many standard bank accounts give customers the option of having an overdraft facility, which could come in handy if they need to borrow a bit of extra cash from month to month.

Interest rates can vary, as can the overdraft limit, and many lenders will charge a fee if you go over the limit – so you should always check the terms and conditions before arranging an overdraft facility.