Most of us at some point in our lives will borrow money to make a large purchase, whether it be a house, car or even a line of credit.

You will sign a written agreement between a lender, usually a bank, and yourself, the borrower to payback the amount borrowed plus interest over a set period of time.

Loans can be considered either secured our unsecured. A secured loan would be a car or a mortgage as these are backed by collateral. Secured loans will generally have lower interest rates than an unsecured loan. If you are to default on the loan the lender can take possession of the property.

Credit cards, personal loans, and student loans are considered unsecured loans as they are lent based on your credit rating and not backed by any collateral if payments are not made. Because there is no collateral on an unsecured loan it is a bigger risk for a lender therefore you will need a good credit rating and interest will be higher than a secured loan.