Finance agreements and debts generally fall under two categories: secured or unsecured. Secured debt means that you have offered an asset as collateral, should you fail to pay the debt.
So, for example, if you took out a loan secured against your house and you failed to pay the debt, your house would be at risk of repossession.
Unsecured debt means there is no collateral and if you failed to pay the debt, you would be pursued over a period of time. Eventually if this failed, you may have the debt sent to a collecting company and even bailiffs.
To answer the question of which is best, then as always, it depends on your circumstances.
If you have an asset like a house, you need a larger amount of money and you are confident that making your repayments won’t be a problem then secured debt can be the better option, since it will often result in a lower rate of interest. However, if you are not confident of the loan’s affordability then you are genuinely risking your home.
If you only need a lower amount of money, then unsecured can be better since it carries less overall risk, should your circumstances change.
To find out more about the different types of debt, visit our Types of Debt page.