Personal Loans can be secured, but are often unsecured and can be used for almost any purpose by tenants or homeowners.

In an unsecured personal loan the lender has no collateral (security for the repayment of borrowed money). Without any collateral, your credit score is usually the decisive factor in whether or not you get a loan and, in general, the lower the credit score the higher the interest rate charged on the loan.

For a tenant (without collateral) who may have a bad credit rating it may not be easy to get a loan at a low interest rate. The higher the APR the higher is the risk perceived by the lender.

The main advantage of an unsecured personal loan is that you are not risking any of your assets. If you are a homeowner then the lender has no automatic right to sell your property to get its money back should you not keep up with the repayments. However lenders can take you to court to recover the money and debt recovery action can also damage your credit rating, making it more difficult to get credit in the future.

When a personal loan is secured it means that an asset, usually your home, has been pledged to the lender for repayment of the loan. By pledging this asset you are providing collateral and by having this collateral the lender's risk of not getting its money back is much reduced because it can sell the asset to recoup the money if you are unable to keep up with repayments.

With the reduced risk of default, the lender may be in a position to relax some of its lending criteria which can improve your chances of getting a loan, especially if you have a poor or bad credit rating. In addition, the reduced risk for the lender with a secured personal loan means that you may qualify for a lower interest rate to make the loan cheaper.