Examples of secured borrowing include mortgages and some forms of car finance, where the money you’ve borrowed is secured against one of your possessions, such as your home or car.
If you fail to meet the terms and conditions of your credit agreement, including making regular repayments on time, in addition to damaging your credit score, your property could be repossessed.
However, one benefit of secured borrowing is that your interest rates may be lower, even if you pay a variable rather than a fixed rate.
Examples of unsecured borrowing include credit cards, personal loans and overdrafts, where the money you borrow is not secured against one of your possessions. As a result, your borrowing costs could be higher.
It’s still important to manage these accounts carefully though, as failing to meet the terms and conditions of your credit agreement, including making regular repayments on time, could negatively impact your credit score, potentially making it more difficult to get further credit in future.
