There are two kinds of loans, secured and unsecured. Secured loans are secured on property. This means that borrower uses his home or some of his property or assets as a guarantee to the lending company. If the borrower fails to repay, the lender can claim the secured property. Because the lender has this security, he is able to offer lower rates of interest. Thus the relationship is most certainly mutually beneficial in general.

Some loans are not secured against the assets of the borrower. They are called unsecured loans. There is no need for borrower to use his/her property as collateral to the lender. The lender has no rights to the assets of the borrower. In the event of the borrower defaulting on repayments of the loan, the lender may take the legal actions and may sue for repayment. Since the lender has no security, the interest rate charged will almost certainly be higher than for secured loans. These rates can be variable or fixed rates.

Unsecured loans are probably more suitable for people who do not want to keep their property as collateral and who would rather pay a higher rate of interest. Since these loans come with higher rate of interest and high monthly repayment option, borrowings must be planned with proper care.

Unsecured loans are a popular way to pay for home improvements, either small improvements or improvements designed to enhance the quality of living. If one has good credit history, he can easily avail himself of the unsecured loan.