Taking out a loan is often a fast and efficient way of getting your hands on capital that would otherwise take a significant amount of time to save up. A loan is, at its most basic level, an agreement between a borrower and a lender. Building societies, banks and loan companies are all different types of lender. When a loan is taken out a credit agreement is set up, and the borrower is granted a certain amount of money if they submit to certain terms and agree to pay back an agreed sum over a specified period of time. The borrower will be asked to pay back the money borrowed in addition to certain charges for the service granted, otherwise known as interest or APR.

There are a whole variety of loans available to the UK resident, but they can be basically divided into two types- secured and unsecured. A secured loan is a loan whereby you set some of your property, otherwise known as collateral, against your loan as security for the lender. Collateral can come in different forms but the most common type is property. This is why you will regularly see 'homeowner loans' being advertised. With this type of loan, if it so happened that you were unable to keep up repayments then the lender would be legally within their rights to reclaim your property to compensate for the borrowed sum. You do not have to own your own home outright to obtain a secured loan, so long as there is enough free equity to satisfy the lender. It is possible to have more than one loan secured on the same property.

Unsecured loans do not require any property to be set against them but you will usually need a good credit record to be able to obtain a loan of this type. Also, unsecured loans usually accrue higher interest rates. Secured loans are generally easier to obtain, and for this reason can be of helpful use to people with a bad credit history. Other advantages to the secured loan include the general trend of a lower APR and, most often, more flexible repayment options.

Interest rates are another factor that separate loans. APR is an acronym for 'annual percentage rate' and is a percentile figure representing the annual interest rates charged and any additional charges such as arrangement fees. Interest on loans is charged in one of two ways, as either a fixed or variable rate. Fixed interest rates are guaranteed for the term of the loan and will not be subject to fluctuation due to market forces. Variable interest rates are generally lower than fixed interest rates at the outset, but do not offer the security of a fixed interest rate and thus incorporate an element of risk.